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Because of the current low interest rate, many people today are choosing to buy a new home. Therefore, most people will need a mortgage in order to finance the purchase. Before you apply for a mortgage, you need to make sure they understand how the process works, so here are 10 things you need to know about mortgages.
1. Take advantage of mortgage calculators: Before you agree to a mortgage, you want to make sure you can make the payments. A mortgage calculator can tell you exactly how much money you will be paying each month. Most lenders will offer a mortgage calculator on their website, so use it. A great investment property calculator is available from Smartline here.
2. Consider all the expenses: Some people think that the interest rate is the only expense involved; however, you need to look at all the fees. You will be required to pay closing costs and other administrative fees, so make sure you are aware of the charges.
3. Taxes: When owning real estate, you will be required to pay taxes each year. In most cases, you will just add the taxes to the amount of your mortgage, so you need to know how much you are paying in property taxes.
4. You will need insurance: Most lenders will require that you purchase homeowners insurance. You want to protect your property from fire, theft or flood damage. This cost can normally be added to the mortgage payment.
5. Fixed or adjustable rate: You can either choose a fixed rate mortgage or an adjustable rate mortgage. With a fixed rate, your payments cannot increase or decrease throughout the life of the loan. An adjustable rate will change depending on the current market. This can be dangerous if rates get high.
6. Know the qualifications: Not everyone will be approved for a mortgage. Lenders will look at your income, and they will look at your credit score. If you have a low credit score, you might consider raising it before applying for a mortgage. You also can list your spouse on the application, and the lender will look at the highest credit score.
7. Mortgage rates will fluctuate: Mortgage rates will change frequently, so you need to keep checking to see when they are the lowest. If the rates are high, you might wait until they decrease.
8. You do not need a huge down payment: Many people are under the misconception that they cannot afford a home because of the high down payment. However, you can purchase a home with as little as 3 percent for a down payment.
9. You need to shop around and compare: Interest rates will vary among lenders, so you need to get quotes from multiple lenders. You can start with your current financial institution, but you should also search online. A great place to start is Smartline.
10. Mortgage refinancing can decrease the life of the loan: If you want to pay off your mortgage sooner, you can refinance and decrease the loan term. This can save you a significant amount of money.