When buying a home for the very first time, there will surely be a lot of questions on your mind and they may mostly center on the financial aspect. It is not just enough to have an overview of the available types of mortgages. There are other important things to keep in mind and it will be discussed in this article. As a first time homeowner, you need to brush up on your mortgage knowledge. Here are the five important things you should do before taking a mortgage.
- Know the interest rate
When taking out a mortgage, it is important to know the interest rate. However, you have to keep in mind that the lowest interest rate mortgage is not always the best deal. The mortgage rate can be significantly reduced by adjustable rate features or adding the upfront discount.
- Be aware of low payments
Just because the monthly payment is low does not necessarily mean that it is the best deal. There are ways to manipulate the monthly payment to make it the best deal such as, extending the term, adding an adjustable rate feature, and adding an upfront closing cost. If you sum it up, it can negatively impact your finances.
- Check the financing closing cost
Some lenders dismiss the mortgage upfront cost by simply adding it to the total loan amount. This will most likely happen if you are going to pay the closing cost along with the equity of the property. If you are going to do the math, you could end up paying double or even triple the closing cost over the life of your loan.
- Check the life of the loan
Ideally, a longer-term mortgage costs more than short-term mortgage and the interest rate is higher for a long-term mortgage. On the other hand, a short-term mortgage requires a higher monthly payment, but the interest rate is lower. Basically, it is all about choosing between a low monthly payment but higher term and interest rate, and a significantly higher monthly payment but short-term and low-interest rate. At the end of the day, you get to choose which one is more favourable to you.
- You need to understand the market you are buying in
When taking out a mortgage loan for the very first time, it is a must to understand the market you are purchasing in. Why? The type of a mortgage loan and the circumstances surrounding it primarily depend on the market you are buying in. In some states such as in United Kingdom, taking out a mortgage loan is not easy. Lending institutions have strict standards because many condominium projects have gone bankrupt. They will require a higher down payment and they will also meticulously check your financial ability to repay the mortgage loan.
Taking out a mortgage does come with a huge financial commitment. For you to find the best deal, you need to keep in mind the things mentioned above. By knowing the circumstances surrounding mortgage loan, you will be able to find the most favorable deal and increase the chance of getting your mortgage application accepted.
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