It is very rare that a new homeowner can purchase a property without a mortgage. And since it is something that most, if not all, buyers need, then knowing some background information and having some tips when deciding what mortgage to get will be beneficial in the long run.
A bridge loan isn’t technically part of a mortgage, but it is a common type of loan that homebuyers receive in order to bridge the gap between their current earnings and their mortgage. It’s a smaller, short-term loan, its length ranging from anywhere between 2 weeks to 3 years. It is known in the UK as a caveat loan, and in South Africa as bridging finance. They tend to be somewhat more expensive than mortgages, with a higher interest rate. Lenders may also require extra collateralization to off-set the higher risks. They are a tempting option for many borrowers because they are arranged fairly quickly and easily, for more information on bridging loans visit bridgingloancenter.co.uk and read their guide.
Adjustable/Variable Rate Mortgage
An adjustable or variable rate mortgage is a mortgage that has an interest rate that adjusts itself to the market conditions. These types of mortgages typically offer interest rates that are lower than those offered from fixed rate mortgages, but the month to month payments can vary and may be unpredictable, and they increase when market rates increase. However, they also decrease when mortgage rates decrease, meaning it it possible to pay off your mortgage faster. Variable rate mortgages also tend to be convertible, being able to be changed into a fixed rate mortgage when interest rates are low.
Fixed Rate Mortgage
A fixed rate mortgage, unlike a variable rate mortgage, has the same rate of interest for however long you have your mortgage. No matter how much the market rate rises (or drops) you have the same amount to pay every month. This allows for stability, so you can plan for years in advance based on your earning. Fixed rate mortgages tend to be planned for a 30 year payoff.
With a fixed rate mortgage, you can also choose to pay more than your monthly payment. When you do this, however much the extra is gets taken off of your principal debt. In this way, you can pay off your debt much quicker. For instance, if add an extra amount of money equal to half of your monthly payments every other week, then you can reduce a 30 year mortgage to 22 years. That is a lot that you save on interest.
So now that you know some of the basic jargon of mortgages, here are five tips to help you plan your mortgage and pay it off in as little time as possible.
1.Calculate the impact of rising interest rates on property value
Low interest rates make purchasing a house in the now more appealing. However, since interest rates fluctuate, there is a good bet that low interest rates will increase sometime in the future. While this will not affect your payment plan on a fixed rate mortgage, it will affect your property value. This means if you renew your mortgage down the road, your monthly payments could be increased dramatically. Also, since property value is tied with how much you are taxed, increased property values mean that you will have to pay higher landowner taxes. Calculating the impact of higher interest will have on your mortgage and taxes now will ehlp you plan for those eventualities.
Do not be ashamed of downsizing
Housing is expensive, and since housing is expensive you may not be able to afford exactly what you want where you want it right out of the gate. There is a sense of pride that comes with a big house in a nice neighborhood, but if itès outside your means, or just barely within your means, then you are doing more harm than good to yourself. Don’t feel like you have to get the best house out there, as the stress of trying to pay off a huge mortgage will only cause stress and worry. You can always trade up in the future.
Round up mortgage payments
It may seem like a very small thing, but rounding up your mortgage payments to an even 100 will help you pay off your mortgage a little quicker. Say your monthly payments are $745. Paying $800 a month takes off $660 a year off your mortgage. An extra $55 a month probably won’t make much a difference in your living expenses, but it will help you to pay off your debt that much quicker in the long run. In fact, it is a good idea to pay into your mortgage as much as you can every month in order to pay it off as quickly as you possibly can.
It can be daunting to look through every mortgage offer, but it is well worth it. Finding a lower mortgage price can have serious benefits in the long run. For instance, if you have a mortgage of $150,000, then by having a mortgage half a percent lower at bank B than at bank A, you can save $10,000, and use that money to pay off your mortgage that much faster, saving even more on interest. Make sure that you look at the flexibility of the mortgages, and what the penalties will be if you need to change your mortgage or miss a payment.
5. Act immediately if you are having difficulty making your payments
Stuff happens in life, and if you are finding it difficult to scrape up enough money to pay your monthly installments, get help immediately. Just one missed payment can have serious results, but if you act quickly and get help from a mortgage professional you can find a solution before it becomes more of a problem. Mortgage professionals are trained to be able to help their clients, and they have the knowledge necessary to help you deal with financial difficulties.