Taking on a mortgage is a real commitment, so take the time to make sure that you are choosing the right home loan for your needs.
If you are at the stage in life where you are ready to buy a home, you are probably thinking about taking out a mortgage to finance it. For most people, a home is the largest purchase that they will ever make and the mortgage that they choose will take between 10 and 30 years to pay off.
For a financial decision of that magnitude, it makes a lot of sense to do your research and make sure that you know all of the facts.
You might think that when it comes to mortgages it is one size fits all, but that couldn’t be further from the truth. In fact, no two mortgages are exactly the same and there are many factors that determine how much you will end up paying. It can be difficult to compare different mortgages, especially with all of the jargon of the marketplace, but with a little knowledge you can make an informed decision and select a mortgage with an excellent rate.
Here are a few questions to ask yourself when you are selecting a mortgage:
How Long Should the Mortgage Term Be?
Most mortgages are offered in 5, 10, 15 and 30 year loan terms. The longer loan terms will offer you lower monthly payments, but the interest will add up to significantly more over the years.
The shorter terms will have higher monthly payments, but you will end up paying less in interest over the length of the loan and you will own your own home sooner.
Think about how long you see yourself living in the home and what you can reasonably afford for a monthly payment. To save yourself money you will want to choose a mortgage that is as short as possible, but if you make your monthly payments too high and your income changes then you could find yourself in trouble.
How Much Can You Save For A Down Payment?
Another question to ask yourself when choosing a mortgage is what you will be able to pay as a down payment. Ideally, you should be able to make a down payment of at least 20% of the value of the home, which will reduce the amount of the mortgage and decrease your overall interest. However, if you are not able to pay this amount you might want to consider a mortgage which allows you to purchase with a smaller down payment.
However, keep in mind that the less you pay for your down payment the higher the principal of the loan will be which means more money that you are paying interest on year after year.
Are There Any Penalties for Paying Early?
Paying your mortgage early is a great way to save money on interest and so if your financial situation allows you to pay extra this is a great idea. However, some mortgages actually charge you a fee if you want to pay off your loan early so this is another factor to watch out for when choosing a mortgage.
Your financial situation is unique to you, so don’t just take any generic mortgage without comparing your choices. It is worth taking the time to find a mortgage that is right for you.