6 Things To Know About Your Home Loan

Getting a home loan is probably one of the most important and complicated things you will undertake. For the average person a lot is at stake and could have disastrous results for the uninformed.

1. Know Your Interest Rate:

There are a variety of interest rate loans available but the most common are adjustable and fixed rate. An adjustable rate fluctuates with the economy. If the economy is in a downturn, the adjustable rate usually is up. When the economy is on the upswing, the adjustable rate is usually down. As the adjustable rate fluctuates so do the monthly payments. A low adjustable rate may be attractive but if that rate skyrockets, your monthly payment will skyrocket with it. A fixed rate allows for a stable payment plan as the monthly payment will be the same fir the duration of the loan.

2. Early Repayment:

Banks and other lending institutions are a business and their business is to make money. The primary way they make money is on interest from loans. When they loan out a chunk of money they have a contract that says that amount will be paid back along with a fee, know as interest, for the luxury of using that money. They are projecting future loans on the entire amount of money to be repaid. If you anticipate earning extra money from time to time, you may want to pay ahead on your mortgage but be sure to check if your agreement includes an early repayment penalty. If the penalty is small enough it may be worth paying your mortgage off early.

3. Mortgage Insurance:

If you don’t have the required 20% down payment for a mortgage, most lenders will require you to have mortgage insurance. The mortgage insurance is not cheap but once you have reached 20% equity in your property, you can cancel the insurance. The Homeowners Protection Act will automatically cancel the insurance at 22% equity.

4. Mortgage Protection During A Period of Unemployment:

With flucuations in the economy from time to time, mortgage protection insurance will keep the payments coming in the event the principal mortgage holder is unemployed for any length of time. Rates are fairly competitive but it will be something you hope you don’t have to use but will be glad you have it if necessary.

5. Points:

Lenders will allow the applicant to pay points up front when negotiating a mortgage. One point equals 1% of the loan principal. Each point purchased will lower the interest rate by a certain amount. It is an additional upfront cost but it might be worth it to lower your interest rate, especially if you have a fixed rate loan. Be sure to ask about points.

6. Are You Really Prequalified

Pre qualifying for a home loan will get you a couple of steps into the mortgage process once you know how much of a mortgage you can get. That only works if the prequalification process involved verification of the data you provided.

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