A mortgage is one of the most important financial decisions that an individual or family will make in their lifetime. This is why it is important to know all of the relevant factors and implications of various mortgage formats. How a person sets up their mortgage can have big financial implications down the road.
Mortgage banking at its best is both honest and forthcoming about how different mortgages work. It is important to deal with bankers that are both trustworthy and knowledgeable about the various implications that a mortgage can have. Trust is one of the key elements in selecting a mortgage banker. Take time to work with honest bankers. It can seem like a hassle in the short term but has long-term implications for the buyer’s financial well-being.
One of the problems when signing a mortgage is that bankers without your best interests in mind can present a deal that looks better on paper than it really is. A perfect example of this is a loan by the name of an “interest-only mortgage”. One of the reasons that a loan like this can look deceptively good is that the payments for the first part of the mortgage (typically a 5-7 year period) are only the interest on the loan.
This means that the payment is small but that little to no progress is made toward paying off the underlying loan. After this period expires the mortgage jumps significantly and homeowners often find themselves underwater.
It is important to know the nuances of the contract and to be wary of any possible changes in payments that will occur over the length of the mortgage. Too many homeowners are blindsided by a payment that rapidly balloons. Another common kind of mortgage is the fixed-rate mortgage which offers unique properties to both the buyer and the seller.
The good news is that falling interest rates allow the borrower to refinance and take out a second mortgage at a reduced interest rate. This lowers the total money needed to repay the loan, which provides the buyer with additional upside.
Another thing to consider when getting a mortgage is a 15-year mortgage versus a 30-year mortgage. This will differ from person to person and there is no right answer. However, there are some relevant factors that need to be considered. Over the course of the loan, the 15-year mortgage will leave the buyer paying significantly less interest.
But the buyer must make a higher monthly payment to properly compensate for this benefit. The 30-year mortgage offers a lower monthly payment but accrues more interest over the course of the loan. Whether a buyer goes with the 15-year or 30-year loan is a matter of what’s best for them. However, many financial advisors recommend the 15-year mortgage over the 30-year. This is because the interest payments really start to accumulate with the 30-year loan.
It is generally understood that the savvier move is to go for the 15-year loan if possible. However, this may mean downsizing the house which is not always ok with the relevant parties.
Regardless of which mortgage the buyer ends up choosing, it is always important to be informed. There are plenty of tools online that help users to decide which loans offer the most bang for their buck. Remember that every dollar saved is a dollar that can go to repairs or anything else that the buyer deems fit. Get to know the interest figures and the significant clauses of the loan. It might seem like a hassle initially, but it can have tremendous benefits in the long run.