Long Term
When home owners take on a mortgage, they agree to a long term commitment. Home buyers should seek out the best professional advice to help them in arranging their mortgage.
Amortization
Mortgages will amortize over a specific period of time. The usual length of a mortgage is 30 years but amortization can be as short as 15 years. On the other hand, mortgages can run longer than 30 years under certain circumstances.
Differences
Mortgages are not all the same. They differ in loan amount, terms, interest rate, and monthly payments. A mortgage must suit individual needs and finances.
Risks
Lenders assess the risk of granting a mortgage to a home owner. Before applying for a mortgage, individuals should try to be in the best possible financial condition. They should work to get their credit rating to the most favorable level. Lenders will reward a good credit rating with a low interest rate.
Market
Just like shopping for any major purchase, people should look for the best deal with their mortgage. Shop around for the lowest interest rate. If all lenders offer the same rate, they might still offer different terms and conditions.
Questions
Borrowers should ask lenders about the mortgage process. Home buyers must be as informed as possible about the steps in getting and managing a mortgage.
Pre-Approval
Pre-approval makes for an easier process down the line. Yet home buyers should not get overenthusiastic about pre-approvals. An individual might be able to get a substantial loan but that does not mean that it is a wise decision to pursue an exorbitant amount.
Down Payment
Generally, lenders require a down payment. The deposit is seen as a portion of the value of the property. If home buyers make a 30% down payment, they have a loan-value ratio of 70%.
Constant Terms
Lenders will offer constant terms to borrowers for a set time – usually ranging anywhere from six months to five years. During this period, interest rates and payments will remain constant despite market fluctuations.
Variable Rate
If a home buyer expects a drop in rates, a variable rate mortgage is a sensible choice. The interest rate will fluctuate according to the market rate.
Payments
Home buyers must be realistic about what they can afford to pay per month. Although a mortgage payment is high priority, so are food, utilities, transportation to work and school, and other basic expenses. The monthly payment should account for only 30% of the gross combined family income.
Rounding Up
Borrowers can ask lenders to round up their mortgage payment - for example, from $141.52 to $160. That $18.48 difference per month might not seem like a big deal but it can add up to thousands over amortization of the mortgage.
Skipping
Skipping a mortgage payment is not a good idea. That action adds to the interest on the outstanding balance. 'Skipping' increases interest costs on the life of the mortgage.
What Question Would You Ask Your Lender About Mortgages?