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When
choosing a mortgage loan most people
focus on the interest rate more than on any other factor of the
loan. The
lowest interest rate, however, does not always mean you pay less
money.
Hidden fees, rising interest rates or prepayment penalties can cost you
a
fortune over the term of the loan. Understanding when to
recognize a bad
mortgage loan may save you a lot of money in the long run.
Variable Rate Mortgages (VRMs)
Variable
Rate Mortgages make buying a home
easier, especially for first-time homebuyers, but you have to
understand what
you are agreeing to. Most VRMs start out with a low introductory
interest
rate that can climb as interest rates go up. Unless you are prepared to
pay a
higher payment later on this type of mortgage it can turn out to be
dangerous
for you. It is especially difficult for those who can barely
afford the
loan to begin with.
You
do have some protection against
high-rising rates if you have the option of adding a cap on either the
interest
rate or the payment amount throughout the life of the loan.
However, it
is safer and less costly in the long run to choose a fixed rate
mortgage
loan. Having a set payment for the life of the loan will be
easier on
your budget.
Prepayment penalty
Paying
off your mortgage loan early can save
you thousands of rands in interest but not if there is a prepayment
penalty
clause in your contract. Make sure there is no such clause before
you
sign your loan papers otherwise the bank can charge you enormous fees
for
paying off your loan. Most people don’t think they can ever pay
off a
mortgage loan early at the onset of the loan but your circumstances
could
change. It would be a shame to be penalized for trying to save
yourself
some money.
Interest only loans
An
interest only mortgage loan sounds
wonderful to some homebuyers because they only have to make a small
payment
each month for the first 5 to 10 years. The down side of this is
you are
only paying the interest and are accruing even more interest on top of
that. You will also not have any equity into the home until you
begin
paying on the principal. It’s really like paying rent for your
home. After the introductory period your monthly loan payments
will rise
significantly. And since most interest only loans are also VRMs
you will
find yourself at the mercy of the current interest rate. If you
are not
gaining equity in your home from your payment then you should
reconsider buying
a home until you can afford another type of loan.
Lower interest rates
If
you are being offered an extremely low
interest rate then you should investigate why. Ask for a quote
so
you can see what the closing costs (initiation & legal fees,
insurance
etc.) will be. Many times a lender will add exorbitant closing
fees to a
loan to make up for the lower interest rate.
High interest rates
If
you know your credit score is good and
you are still being quoted higher than normal interest rates then don’t
take
the first loan that comes your way. Shop around. Do your
homework
and make sure you know what the current prime rate is and the rates of
several
lenders. A home mortgage loan is a very long commitment and you
don’t
want to make that commitment with the wrong lender.
Lenders
are in the business of making money
so it is up to you to understand what is available to you. Most of us
think
“bank” when we think mortgage, and one mistake people make is going to
their
bank and taking the rate the bank gives them.
Even
though the bank often gives a discount
off the prime rate, most of the time it is not the best rate available.
People
think that because they are getting a discount that that is the best
rate
going. In most cases, the rates given by banks are not the best on the
market. Do some legwork first so you can get the best mortgage
loan
possible.
To apply for a mortgage loan OR
refinancing, click here for a No-Obligation
Quote , you will have to fill
out a
short application form. You will then receive a FREE quote from well
established, nationally recognized lenders. You do not need to decide
now
whether the loan is for you.
There
is no obligation on your part. If you decide that it is not for
you, you simply do not have to accept the offer. You have nothing to
lose and everything
to gain.
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