Say you want to buy the home of your dreams but you do not have enough cash at hand to finance the purchase, what do you do? Just like when financing an automobile purchase, you may opt to raise a small amount as down payment and then commit yourself to paying monthly installments until you finally cover the total cost involved in the financing, this is basically referred to as a mortgage loan.
Just like with any other purchase, comparison shopping is the key when it comes to financing your dream home. The wide gamut of terms and conditions associated with different categories of mortgage plans can be very nerve-racking, a situation that may leave most home buyers unsure of how to approach the process.
The best strategy for comparison is one that covers key aspects of a loan namely the interest rate, the loan term, the general terms and conditions, as well as all other applicable fees. Only by focusing on these points will you be guaranteed of making an informed decision.
The first most important aspect is definitely the interest rate. Mortgages come with variable/adjustable or fixed interest rates. As the name would suggest, a fixed rate is one which remains constant throughout the term of the offer. A variable rate on the other hand would change based on the economic trends. You therefore need to project the path the economy is likely to take in the future so as to settle on the best possible rate, one that would be of your best interest as the buyer.
Second is the loan tenure. Generally, such offers come written under 15, 20, 25, or 30 year terms. Based on the type of interest you choose and your income level, you can always be able to settle for the best possible term, one that will ensure you experience great savings when the deal is done.
Generally, a longer repayment period such as that of a 30 year term will have significantly low monthly payments compared to that of a shorter repayment period. However, the short-term repayment period will give significant savings in the long-run than its long term counterpart. Based on your net income you can be able to select one that will have a reasonable monthly installment figure that will not put a strain on your other obligations.
Are there any other applicable fees involved? This is another aspect of consideration. Most people would stop their search when they find the ‘best’ interest rate and loan term, but additional fees and charges also play a significant role as they may negate the little savings you would have experienced from the low interest rate. For example, if you opted to make weekly or bi-weekly payments, you may end up paying for an unbudgeted processing fee.
The idea here is to account for all applicable fees and have a rough estimate of just how much you will end up paying once the deal is done. In some situations, you may discover that opting for an arrangement that otherwise seems to carry a somewhat higher rate but has no applicable fees could actually be much cheaper in the long run.