Mortgage Basics 2

When you sign up for a mortgage, you have many choices to make. Here are some mortgage basics that will help you understand your choices better so that you can make informed decisions.

Mortgage Basics Part 3 – Choices, Choices, Choices

If you thought choosing a home would be hard, wait until you find out all of the choices you have when it comes to choosing a mortgage! The first thing you need to decide is how much you are going to borrow. This will be based on how much your lender is willing to lend to you, and how much you can realistically afford to repay.

Next, you will have to choose a term for your mortgage. A traditional mortgage runs for a 25-year term. However, if you choose a shorter term, you will have a less expensive mortgage in the long run.

A third choice you will have to make is the type of mortgage you want. You can choose a repayment mortgage or an interest-only mortgage. A repayment mortgage allows you to pay off your home one month at a time, owning it completely when you are done with the mortgage term. Interest-only mortgages only require you to pay the interest from month to month, but the capital is due at the end of the mortgage.

Interest is another choice you have. You can choose a variable rate or a fixed rate. Most variable rate mortgages have a fixed discount rate at the beginning of the mortgage term.

Finally, you will need to choose a lender. Your lender will be a bank, building society, or other lending institution. Choose a lender with a good reputation that offers you a best interest rate and a loan with few fees. Using an independent mortgage broker is a good way to know that you have found a quality lender.

Mortgage Basics Part 4 – How Much to Borrow

Deciding how much to borrow is not easy. Sometimes lenders will offer you far more than you can realistically afford. Use mortgage calculators to determine what your monthly payments will be with various mortgage structures.

Keep in mind that most lenders are willing to lend you three times your annual income. Also, remember that you will have to account for the capital repayment if you choose to use an interest-only mortgage structure. Make sure you do not end up in a mortgage that costs more than you can pay, because you will put your home at risk.