Quick tips for help you to choose a mortgage
Choosing a mortgage is one of the biggest decisions most of us will ever make in our life and we need to ensure that we can meet our necessary payments and that we will get a deal that will fit well with our means. Mortgages can be complicated and full of terms that befuddle us at every turn so, with that in mind, we decided to look at the basic features of a mortgage and what steps you should take before choosing one.
Mortgage features and terms
At the basic level a mortgage will simply be a loan which you repay at a set rate over a fixed number of years. This could be 5-15% covering any period from 5-30 years and your interest is most likely to be calculated at the start of your policy. However, there are a number of sub terms and clauses you should be aware of.
Fixed rate vs adjustable rate
A fixed rate mortgage will maintain a single interest rate determined at the start of your policy. This means that you will only pay a set amount each month. An adjustable rate mortgage will fluctuate with interest rates generally, or a specific market index, and your interest rate will be recalculated annually or semi-annually. An adjustable rate mortgage means that some years your mortgage will cost less but some year it will cost more.
Mortgages generally have a maximum term which determines at what date the final payment should be paid. Some mortgages will require you to repay all outstanding amounts on a set date or will require the property to be sold to meet expected repayment.
In some mortgage policies the issuer will reserve the right to change the payment amounts and frequency at their own discretion. When choosing a mortgage this is something to be aware of and to try to avoid as it can lead to you being unable to meet your mortgage repayments.
Prepayment is a term referring to whether you are allowed to pay off some or your entire mortgage in lump sums during the course of your policy. Many companies allow prepayment whilst some penalise or disallow any prepayment within a set time frame. Of course, prepayment will lower your mortgage value and hence the interest rates so if you expect your financial situation to improve as time progresses then you should look for this in a policy.
Choosing a mortgage
When you’re analysing these terms and the clauses of your policy you need to plan your budgets around these features and try to estimate how each one will affect you. Using a home loan calculator can give you a good estimation of what your mortgage repayments will be based on your interest. Using this information you can evaluate policies and factor in any features that might be beneficial to you in coming years. Having extensive options can help but it may mean you pay a higher interest rate so strive to strike a balance between features.