For many people looking to buy a house, mortgage rates and loans can seem terribly complicated. There are so many deals out there, and all of them seem to offer something slightly different.
But what gives? Well, that’s the topic of this post. We take a look at everything you need to know about these financial instruments and forms of credit so you can make better decisions when you finally come to buy a house.
Down Payments Are Deposits
The first thing to know is that down payments are deposits – money you offer the owner of the home you want to buy upfront. Banks need this as a kind of security. They want to know that even if house prices fall, they can still get back their money.
Interestingly, there is now a first-time homebuyer $15k tax credit and a home $25k grant. Both of these assistance programs make it easier to save up a down payment on a house and get the funding required, according to Mortgage Quote.
The amount of interest you pay on a mortgage usually falls as down payments rise. Lower risk means less interest paid to the lender overall.
Closing Costs Are Paid When You Finalize The Loan
Another thing you need to know is that you usually pay closing costs when you finalize the loan. Banks will often charge you a fee for using their products, and things can get expensive.
Fortunately, some products require no upfront fees, so you’ll want to be on the lookout for these. Mortgage brokers can tell you the lowest two- and five-year cost of various home loan products, letting you decide which offers the best deal overall.
The Term Is The Number Of Years You Have To Repay The Loan
Sometimes, you’ll see home loans stating their “term.” Don’t confuse this with terms and conditions. The term is just the length of time you have to complete making payments on the loan.
The longer the term, the lower the monthly payments, and vice versa. Just be warned, you’ll pay more interest overall if you opt for a 30-year term compared to a 15-year term, even if the rate is the same.
Variable Rate Mortgages Change Over Time
Another thing to know about home loans is that the rate of interest can change over time if you have a variable product.
Variable loans mean that the rate that the mortgage company charges you can change from time to time, based on the base rate set by the central bank. This can go up and down.
Overall, interest rates on variable loans are lower, but they imply more risk. People who take them may have to deal with higher rates in the future, even if prices shoot up a lot.
Fixed Rate Mortgages Charge A Pre-Agreed Interest Rate
By contrast, fixed-rate mortgages charge a pre-agreed interest rate, fixed for a term, usually around five years. This means you’ll pay exactly the same amount every month on your property, helping to keep payments predictable. Many people prefer this type of arrangement, even if rates are slightly higher for this option.
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