Buying a house is something that every adult looks forward to. Owning a home can give someone pride as they’ll be living under their own roof. A home is also a valuable asset that can be inherited by the owner’s children. It is a form of security that can be used to secure future loans for investment or personal development. Finding the right home can be a daunting task, so prospective homeowners are advised to always take their time to do some research before making important decisions. After finding a suitable home, the next step is searching for a suitable mortgage.
What to Look for in a Mortgage
Every consumer is cost-conscious. This means that they usually look for the cheapest home loans they could find. This is crucial because a mortgage involves a huge loan amount and has a long term, so a small difference in the rate of interest can have a huge impact on the interest paid as well as the cost of acquiring the home. That is why shopping around for the cheapest loans is usually recommended. Fortunately, there are many home loan brokers who can help with the search for the most affordable home loans.
What Most People Usually Overlook
It is important to note that the mortgage rate charged by a lender is the most important factor of consideration when comparing home loans. However, consumers should look beyond the interest rates charged. Ideally, they should consider other factors, such as loan limits, penalties, affordability of monthly payments, insurance premiums, processing fees and type of interest charged on the mortgage. Failure to consider all these factors can lead to disappointments and even default in the future. Here’s what’s in store for you if you fail to consider these factors:
1. High Insurance Premiums
Lenders understand that there are different types of consumers out there. Some consumers have financial discipline and can save up for the required deposit, regardless of the magnitude. On the other hand, there are consumers who lack financial discipline and cannot save up for the minimum deposit required despite having huge incomes. For this reason, mortgage lenders usually charge different mortgage insurance premiums for the two types of consumers. If you do not look beyond the mortgage rate, you may fail to notice the difference between the insurance premiums charged for the different types of clients. As a result, you may end up paying a small down payment for the loan and pay a higher premium on mortgage insurance.
Ideally, you should look beyond the mortgage rate to ensure you don’t pay an unreasonable amount for mortgage insurance.
2. Unaffordable Monthly Payments
The quality of life you live should improve when you acquire your new home. After all, there are many benefits that come with homeownership. The monthly mortgage payments should not have an adverse effect on the quality of life you live because each payment should be the same as or a little bit higher than the rent you used to pay for a similar rental unit. Beyond the mortgage rates, be sure to also check the monthly payments required for a given loan to ensure the loan is affordable. If you used to pay $1,000 monthly as rent, be sure to choose a mortgage that demands a similar monthly payment.
If you fail to consider the monthly payments, you may end up taking a loan that is too expensive for you to afford. After a couple of years, you may find yourself defaulting on the mortgage as living expenses rise.
3. High Processing Fees
Most lenders usually charge a one-off processing fee, which is a small percentage of the mortgage value. If you fail to compare the processing fees and other upfront costs charged by different lenders, you might end up paying unreasonably-high processing fees, which will increase the cost of the loan. Please note that you will pay interest on the processing fees, insurance premiums and other upfront costs. To ensure you do not pay an unreasonably-high processing fee, be sure to work with a competent mortgage broker to identify lenders with the lowest processing fees.
4. Lower Loan Limit
Some lenders usually have lower loan limits because they understand that the vast majority of their target customers usually procure mortgages within the limit they have set. If you fail to look beyond the mortgage rate, you may find yourself restricted to a lower limit. This means you may not be able to purchase the home of your dream. Be sure to check the loan limits that different lenders have to ensure you work with a lender that can help you purchase the kind of home you want.
5. Huge Late Payment Penalties
The terms and conditions on a mortgage must always be read by consumers before signing any loan contract. This is because there might be some unfavorable clauses, such as huge late payment penalties. Consumers should always look beyond the mortgage rates to ensure they are not subjected to unreasonably-high late payment penalties that can significantly increase the outstanding balance of the mortgage.
6. Type of Interest
The initial interest rate might be high or low, but what matters is what you’ll be paying in the future. A loan that has a fixed mortgage rate is more predictable as you will be paying the same monthly installment for the duration of the mortgage. Home loans with fluctuating interest rates, on the other hand, are less predictable as the performance of the economy and the government’s monetary & fiscal policies affect interest rates. This means that rates may rise or reduce in the future, and this will affect monthly installments. Consumers should look beyond the mortgage rate charged and consider the pros and cons of the different types of interest to ensure they can choose the right type of loan for their needs.
The good news is that mortgage brokerage firms usually have all the information that consumers may consider important, so they can help you avoid common mistakes.