Before you even decide to buy a new home, you should ensure that you will be able to finance the purchase. You will need to get a mortgage, unless you have alternative sources of funding. Following below are the key things to consider when getting a mortgage:
For starters, know that just because your mortgage deal charges low interest rates it does not necessarily mean that you got the best deal. Lenders sometimes artificially reduce mortgage rates by adding adjustable rate features and upfront discount points that might not make excellent financial sense.
Similarly, the annual percentage rate (APR) has limited value. It doesn’t consider the rate at which you will pay off your mortgage principal. Similarly, APR bases payment and future rate adjustments for adjustable – rate mortgages on the current index rate (and not on forecasted future ones).
This means that you need to beware of all low payment plans. Lenders sometimes manipulate monthly payments to enhance affordability while extending the overall term, adding adjustable rate features and adding up – front closing costs.
Therefore, the most important thing to consider is the time. Determine how much you can expect to live in the property you wish to buy. Since interest rates are tied to time, the longer the term, the higher the rate of interest you will pay.
You also ought to consider the total cost of your mortgage. This cost covers closing fees and interest charges. Most borrowers forget that mortgage payments come in two parts – one which will work for you and the other for the lender. The principal works for you since it enables you build equity while the interest payments enrich the lender.
To conclude, therefore, consider how the mortgage will impact on your overall wealth. Your mortgage choice is, perhaps, the most important financial decision you will ever make. Take the time to study all available options before selecting the one that will cost you least to build wealth.