Taking out a mortgage is a big financial decision. So that you do not regret your decision on the home loan, there are a few basic rules that you should definitely follow. Here are three of them.
6 simple tips to secure a 1.75% mortgage rate
Secure access to The Ascent’s free guide on how to get the lowest mortgage rate on your new home purchase or refinance. Interest rates are still at several decades low, so take action today to avoid missing out.
1. Don’t borrow more than you can afford
The most important rule when taking out a mortgage is that you should never borrow more than you can comfortably afford.
You don’t want to stretch out to get a mortgage as doing so could put you at risk of foreclosure. You could also find it difficult to afford furniture, maintenance and repairs to your home, which could make your home less enjoyable or even affect the underlying value of your home due to deferred maintenance.
Make sure you have a detailed budget that takes into account the monthly cost of capital and interest on your mortgage loan, as well as the cost of taxes and insurance. If your future mortgage payment is going to be more expensive than your current monthly housing costs, you should do a practice run and invest the extra amount in savings for a few months so you can get an idea of what your new higher payments will feel like.
2. Make a generous deposit
Ideally, your goal should be to pay a 20% deposit. With that much money to invest, you have the widest choice of mortgage lenders as this is the preferred minimum deposit.
You also avoid having to pay for private mortgage insurance. PMI is added to your monthly bills even though it doesn’t provide insurance for you – instead, it protects the lender from losing money if they have to do a foreclosure when you’ve made a small down payment.
If you can’t get 20% off, try to get off as much as you can – aiming for a minimum of around 10%. If you don’t make a down payment of this amount, there is a really significant risk that you might end up with so much credit that you couldn’t pay it off in full when you sell your home. You are also limited to a narrower pool of lenders who allow down payments below 10%.
3. Look for a loan
Finally, you should always seek out multiple mortgage offers before committing to a home loan from any particular lender. That’s because there is no single mortgage rate – the cost of interest on a home loan can vary widely from lender to lender.
Since a mortgage is a fairly large loan with a long payback period, any interest rate differential, even if quite small, can have a big impact on the total cost. Only by obtaining multiple quotes from multiple lenders can you ensure that you are getting the cheapest home loan for your situation.
Hopefully, if you get quotes from a few different mortgage loan providers, make a reasonable down payment, and make sure your home loan is within your budget, you will be satisfied with your decision to take out a mortgage to buy your home.