Getting A Mortgage That Works For You
Purchasing a home is the biggest investment that you can make for your future and is probably the most expensive thing that you will ever purchase. Obtaining a mortgage for the home can be tricky and choosing the wrong type of mortgage can end up costing you thousands of additional dollars each year. There are a number of things that should be taken into consideration when choosing a mortgage for your home to ensure that you are getting the best financial product for your needs.
Type Of Mortgage
The first thing that you will need to decide when choosing a mortgage, including self build mortgages, for your home is to choose what type of mortgage you would like to get. Although the adjustable rate mortgages may seem attractive with their lower initial payments, if interest rates rise you will be paying thousands of dollars more in interest to the lender and your mortgage payments may become unaffordable. A fixed rate mortgage is preferable to an adjustable rate mortgage because the payments will remain the same for the entire life of the mortgage.
Mortgage Term
The length of the mortgage plays a large part in calculating the amount that you will be paying each month. Most mortgage lenders will offer a term of 15 years or 30 years for a conventional mortgage and allow the homeowner to pay more than the mortgage amount to pay off their mortgage at a faster rate. A shorter term for the mortgage will mean a higher monthly payment for the term of the mortgage, but the homeowner will pay less than half of the amount of interest that would be required under a 30 year mortgage term.
Mortgage Payment
A good rule of thumb to follow is that your monthly mortgage payment should not exceed 30% of your monthly take home pay or you may find yourself with a payment amount that you cannot afford. If the payments required for a 15 year mortgage term is higher than this, you should consider signing for a 30 year mortgage term and put any additional money that you have at the end of the month towards paying off the mortgage earlier.
Mortgages To Avoid
There are some mortgage products that are common today that should be avoided at all costs. This includes most of the “exotic” mortgage loans, such as interest only mortgage loans. Many of the people that opted for these products did so because it allowed them to buy more house than they could truly afford through clever accounting techniques and deferring a portion of the required payments. As these individuals soon found out, these types of mortgages have payments that can skyrocket in the blink of an eye and are very difficult to pay off or refinance. A fixed rate mortgage loan is the best way to go.
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