Owning a home is a big commitment. It takes up your Saturdays with gutter cleaning, lawn mowing, pressure washing and window cleaning. It is also worth it because at the end of the day, it's yours. The type of home loan you have makes a big difference on how quickly you can own your home out right. A home mortgage is a tool that you can use to purchase a home, but the loan needs to fit within your financial plan. A home is a long term asset that you will own for years to come. The mortgage can determine how long it will take for you to pay the bank off and hold the title free and clear.
If you are considering buying a home or refinancing speak with a mortgage lender about the current interest rates and your loan options. Make sure that you tell them about your financial goals. For example if you need to keep money aside for sending kids to private school, your mortgage payment should be lower. If you are empty-nesters that want to retire, you should pay more monthly so that the home loan can be paid off sooner.
When securing a home mortgage you should compare the following things:
Interest Rate - A small change in interest rate, makes a big difference. Anything over 0.125% should be carefully evaluated. For example on a $300,000 mortgage with a 30 year term a 6% interest rate would have a payment of $1,798. That same loan at 5.5% would have a monthly payment of $1,703. That saves your family $96 a month, enough for a cell phone or cable bill. More importantly, over the life of the loan that small change could cost you over $34,000 more in interest.
Term - The term, or life, of your loan is essential for calculating your monthly payment and for understanding how quickly your home will be paid off. Most people secure a standard 30 year mortgage but that is not always the best solution. A 30 year mortgage is ideal for keeping your monthly payments low. If you are worried about personal cash flow it is a good option. They are terrible for people with a financial plan to pay off their home or to retire. If you are over the age of 30 you should seriously consider a shorter term to give you flexibility as you age. For example a 50 year old, refinancing with a 30 year mortgage, would not pay off the house until they were 80! A fifteen year mortgage would be a much better solution in that circumstance. Evaluate your long term goals when choosing a loan term.
Fees - Some mortgage lenders will place additional fees on your mortgage loan. In order to see how much they are charging, review the Good Faith Estimate. This will list out the closing cost fees, buy down fees, origination fees and more. Get a GFE from more than one mortgage banker to see who is offering you the best loan. The more fees that are charged the higher your APR will be. You can compare this by looking at your Truth and Lending Statement.
Your home loan should be a tool for accomplishing your financial and housing goals. Do not let your loan dictate terms to you. Instead decide what your objectives are and find a loan that fits within them. You can retire when you want to, have your home paid off early, and obtain a low interest rate by working with a knowledgeable mortgage lender that can help you accomplish your goals.
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