If you are looking to buy a house, then you need to find the right kind of mortgage. Various lenders offer different kinds of mortgage packages. Knowing which lender to approach and what mortgage package to choose can help get you the best mortgage deal and lead you one step closer to owning that dream house.
To determine the right mortgage package, look at the price of the house you want. From this price, subtract the amount of down payment needed. The resulting sum is the amount you need to borrow to pay for the house.
While banks are institutions where you can borrow money, these institutions cannot just lend you the entire amount that you need. Before banks can release any money, you are first required to undergo a background check. This includes checking on your credit score as well as your present financial status. It is only then that the bank can determine how much money you are able to borrow.
After determining the amount you can borrow, you are then given an option to choose among the several kinds of mortgages, the most common of which are: a fixed-rate mortgage and the mortgage with an adjustable rate.
From the name itself, a fixed-rate mortgage means that the interest rates and the monthly payments on the mortgage remain the same throughout the term of the loan. The rates of interest are always higher on this type of mortgage because there is less risk involved.
On the other hand, a mortgage with an adjustable rate is one where the interest rate varies depending on a number of indices. The main advantage of this type of mortgage is that the interest rates are usually lower. Due to market fluctuation however, these low interest rates tend to increase over time.
In addition to these two main types of mortgages, you can also opt for a combination of fixed-rate mortgage and adjustable-rate mortgage whereby the loan is locked in to a fixed interest rate for a certain period before allowing the interest rates to increase. Ask around because there are banks that also allow you to choose how much you want to pay on a monthly basis.
Whatever type of mortgage you choose, remember also to ask about the annual percentage rate. This allows you to compare the costs of a loan in terms of percentage by including the rates of interest with the other costs such as insurance, processing fees and discount points.
Should you opt for a short-term mortgage, bear in mind this type of mortgage usually requires a higher monthly payment. On a final note, it also helps to be aware of closing costs or settlement costs. You definitely want to avoid surprises when it comes to additional fees.
By Martin Fisher