We all go for a loan at some point in our life and that could be a life altering decision. It could change your credit score, impact your spending habits, and change the dynamics of your income and expenditure. However, there is no harm in borrowing as long as it is for a reasonable cause and you are taking a loan from a reliable lender.
One of the easiest, most efficient loans that are also low on the interest rates is the mortgage loans. These fall under the category of secured loans because the lender has an asset or a mortgage tied to your loan which could come in handy if you fail to pay back the loan amount.
Well, we all agree that mortgage shopping isn't as easy or fun as shopping for a PlayStation, mobile, or television. However, it is inevitable, and you need to put in the effort to understand the fine print, the jargon, and the best deals and bargains that you could land. But do not worry. Following these tips would make the process relatively less painful and slightly easy.
Evaluate Your Finances
Buying a house is a massive decision and can involve all your savings from several years and pledge your future savings too. So, it would help if you consider numerous factors before applying for a loan. For instance, your prospective home's cost, financial standing, future plans, etc., all play a prominent role. Using a quick mortgage calculator will help you understand how much your monthly repayment could come up to. And you could use this as an indicator to see if you can afford to pay the said EMI with your present income. If it doesn't seem right, you could always look for a different lender with a different rate.
Remember that while the goal is to pay back your mortgage as early as possible, you also need to leave some money for your day-to-day living, other expenses, and future savings. You cannot put all your eggs in one basket, so do not drain out all your savings to pay for the mortgages. There are numerous lenders out there who would offer you a loan with an attractive EMI if your credit score is good, so do not worry.
Decide On The Mortgage Duration
The length of your mortgage or the mortgage period significantly impacts everything from the interest rate to the monthly installments. So, make sure you have a fixed period in mind. While the 30-year-mortgage might seem like a great idea because of its popularity, you need to understand that it does not apply to everyone. The 30-year period is not just an excessively long-term commitment, it is also meant for young individuals who have just started their careers. If you are in your 30s or 40s, you might not be able to secure a loan for a 30-year period.
Instead, you would have to go for the shorter loan terms, like 10 to 15 years of the repayment period. This is because you are closer to your retirement age, and paying back a loan after retirement might not be an easy task. So, pick a loan tenure that suits your employment years. A few financial experts also suggest that if you have the budget, it is always best to go for a shorter loan period because that would help you land a low interest rate.
Pick the Right Mortgage
If you are wondering what that could mean, don't worry. We are here to explain. There are numerous mortgage types that you could pick from based on your background and where you live. For instance, those who served in the armed forces could avail themselves of a special interest rate, a better loan amount, etc. Similarly, those living or buying a property in rural or remote parts of the country would get a special price too. You might have to look for different loan types based on your credit score too. This means that your lenders would be different if you had a higher credit score than if your credit score was low. So, read the fine print, understand the different mortgage types, and pick one that suits your profile best. Do not expect the loan provider to delve into the details and explain the fine print to you because, in most cases, they are trying to get you a loan with the highest rate of interest.
After deciding on the mortgage amount, duration and evaluating your savings, it is time to make the big decision. You need to pick your lender, and that could be a tough choice as shopping for lenders would definitely not seem as interesting as shopping for clothes or accessories. One easy way to get started is by asking for recommendations before you explore the marketplace. In the internet era that we live in, all the information you need on different lenders in your region is available online so that you could browse through them.
It is also possible to check the ratings, reviews, and recommendations of fellow homeowners who used the services of these lenders. This would help you get a better picture of the deals you could get and give you an upper hand while negotiating the options. It is important to select the right financing option and the best prices, and you could do that only by asking as many questions as possible. So, when you meet your prospective lenders, do not shy away from asking about the closing fees, the interest, loan options, etc.
Ask About the Points Mix
There is more than just the interest and the principal amount involved when you apply for a loan or a mortgage. As you delve deep into research on the various lenders and compare quotes, you would understand that there are several costs involved in the loan process. You need to pay attention to the point mix, which is the fees you need to pay upfront in order to reduce the interest you pay over the years. This comes in handy if you wish to go for a long-term loan and wish to stay in the same house for many more years to come. So, for instance, if you have a thirty-year mortgage with an interest rate of seven or ten percent, paying for the points will help you bring that interest rate to something lesser than that seven to ten percent.
And in the long run, you could save a significant amount of money as your monthly installments would be relatively lower, and you could pay out the loan faster. The clause for points mix could differ from one lender to another, just as their processing fees, so make sure you read the fine print and understand how much you could save by paying for the points.
Have A Cushion
Speaking of a home and mortgage, this could give you a different connotation. But, no, we are not talking about the cushions to decorate your home. Instead, this is the financial cushion. You need to set aside some of your savings for the home, even if you are applying for a loan. This would come in handy while you are making a down payment or paying for the closing fees of your loan.
Besides, having some money in your savings account would help you get a higher loan amount or a lower interest rate, whichever you choose. You would also have fewer liabilities if the real estate market were to crash because the loan amount you need to repay will be significantly lesser than if you were to owe the lender the entire cost of your home.
Buying a home is a dream come true and a lifetime investment. So be patient and shop for it with all your heart. Look for deals, negotiate, and shop like you are at Walmart, looking for the best deals. Remember that what you save on the interest rates and the origination fees could come in handy. At the same time, you decorate your property with state-of-the-art decor, furniture, electronics, and amenities. So, do not rush into making a decision and do not give in to the pressure of deciding while the clock is ticking!
Picking the right mortgage is a complicated and tough decision to make. While it might be tempting to pay attention just to the interest rate, there are numerous other factors that you need to consider too. And that's because everything from the kind of loan to the duration of the loan and the number of years you plan to stay in that home would influence.
So, make sure you evaluate and take into consideration all these aspects before you sign on the dotted line. Remember, the options might feel overwhelming, and you might feel the pressure to make a decision. However, this decision would have a long-term impact on your life and finances, so it is important to make an informed decision.