Mortgages can be confusing, especially when it’s your first time around. There are many things to take into consideration: interest rates, loan terms, fees and charges, and enough small print to test anyone’s eyesight. Many people will choose a mortgage product based on the interest rate alone. However, often a loan with a low interest rate can cost you more than one with a higher rate.
Mortgage Interest Rates
A mortgage interest rate determines the amount a bank will charge you in return for lending money to you in the first place. This is a percentage of the total amount that you still owe the bank. So, the lower your interest rate is, the lower your repayment will be. Most banks will calculate interest daily.
Of course, the less you owe, the smaller your repayment will be, too. When you make an extra repayment towards your home loan, you pay that amount directly against the principal owed. Paying as little as $50 a week extra off your loan can save you thousands of dollars and several years off your mortgage.
Mortgage Fees and Charges
Many banks and lenders will have additional fees and charges that you may need to pay monthly, yearly, or when you require an additional service such as redrawing money that you have repaid.
Sometimes a bank will offer a seemingly low mortgage rate on a product that has many fees attached to it. Before you sign, read the fine print. Analyze the charges and how often these will apply to you. It may not seem like a great deal of money, but a few dollars here and there can add up to a lot over the life of your mortgage. Many banks will charge a service fee if you make extra repayments on your mortgage or if you decide to pay it out early.
In the heat of the moment, when all you can focus on is your new home, it’s easy to forget some of these small details; however, this can prove very costly in the long run. When you choose a lending product, it is important to consider the whole package, not just the interest rate. Research can quite literally pay off dividends, so when looking for a home loan make sure you check all the fine details.
This article on mortgage repayment was supplied by Renee Mirabito from Constant Content.
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