Finding the right mortgage that will fit your needs can be tough. Besides the fact that you have to sort through all the technicalities and benefits of each mortgage type, you also have to consider the payments that come after.
For example, you have to ask yourself if it's worth paying a higher interest rate to lower the principal on your mortgage. It's easy to get confused by all the different options, but this article can help simplify things for you.
That being said, we have listed a couple of recommendations below that may help ease up the challenge.
1. First-Time Buyer Mortgage
If you're buying a house or condo for the first time, you may want to consider a first-time buyer mortgage.
What's the difference between a first-time buyer mortgage and a regular mortgage? Well, a first-time buyer mortgage will give you a lower interest rate and a lower down payment. These two things may help you save on your monthly payments.
However, keep in mind that the first-time buyer mortgage is only available to those who are buying a primary residence. Both you and your spouse must be first-time buyers to qualify for this loan.
2. Remortgaging
This is a loan that's used to refinance your existing mortgage. If you have a mortgage with one lender, you may want to consider another one if you believe you'll get a better deal.
It's not always a good idea to think about remortgaging if you are unable to pay it off early. The rule of thumb is to make sure that you only refinance if you can still pay off your mortgage in the next 3 to 5 years.
3. Offset Mortgage
Basically, you may establish a savings account linked to your mortgage, and you get a better interest rate on it. Take note that this may only be viable if you have a huge amount of savings. The amount should be enough to cover a couple of years' worth of payments.
Another thing to point out is that you get the amount you save in the offset account. Make sure that you have a good plan in place because this is another option that may come with a number of rules and regulations.
4. Flexible Mortgage
If you want a mortgage type where you may do overpayments or experience payment holidays, this is a perfect choice. The only catch is that you will have to pay a higher interest rate. It's best to weigh the pros and cons before deciding to get this, as you may be surprised by the amount that you need to pay off by the end.
Be sure to discuss this with your broker so that you may clarify the technicalities and details appropriately.
5. Guarantor Mortgage
A guarantor mortgage gives you the chance to buy a home even if you have a bad credit history. You'll need a guarantor to assure you'll pay your mortgage.
The guarantor will also have to do a satisfactory credit check, but the rules are a little different. If you have a bad credit history, then you can ask the help of a parent, spouse, or anyone else you know who has a good credit score to 'carry the load' for you.
6. Equity Release Mortgage
If you are over 60 years of age and have a good track record of paying off your mortgage, then you may choose to convert your mortgage into a lump sum of money. This is also known as equity release, and it's effective if you want to use the money to make home improvements or pay for medical services.
The advantage of this mortgage type is that you don't have to worry about paying the mortgage for the rest of your life. You only have to pay it off once, and you can just enjoy your retirement in the foreseeable future.
7. Buy-To-Let Mortgage
If you want to make an investment, a buy-to-let mortgage may be the right thing to consider.
Typically, you get a higher rental rate in return. In addition, the lending conditions may be relaxed. However, it's often harder to get a buy-to-let mortgage than it is to get a normal mortgage.
To better explain this, think of your home as a rental space. This mortgage will ease up on the rules so that you may still receive a fair amount of fees from those who are renting it out, well enough for you to pay for your financial responsibilities.
Should I Get a Fixed or Variable Rate?
It depends, really. The variable rate is more flexible, and you may even get better rates when the economy is doing well. If you think that the economy is going to be bad in the near future, then you may want to proceed with caution.
It works differently for different people, and what may do well for your neighbour may not work out so much for you. If you're not sure, you can set up a comparison table that will highlight the differences.
For example, you still have to consider the tax you have to pay when you're borrowing a certain amount of money. Anticipating this will help you make a better-informed decision.
A Few Common Mortgage Questions
Asking these questions may help you choose better in the long run:
1. What are the Interest Rates?
Interest rates are the amount of money you need to pay in interest on a loan. This can come in two forms: fixed and variable.
The fixed rate means that the interest rate does not change. The interest rate remains the same throughout the life of your loan.
On the other hand, the variable rate can increase or decrease depending on the bank's policy and the interest rates that they offer at the time.
2. What is the Lock-In Period?
A lock-in period is when you and your lender create a contract that fixes the interest rate. In most cases, you will not be able to change the interest rate until the lock-in period has ended.
For example, if you lock in a rate for one year, then you can only change the interest rate for one year.
3. Can I Pay Off Early?
You may pay off your loan earlier than expected, but you will have to pay a penalty fee. You should ask yourself if it's a good idea to pay your loan early.
For example, if you have a 5-year mortgage, then you may think about paying it off immediately because you have the money to do so. However, if you are doing well with your current mortgage, it may not be good to pay it off earlier.
Looking at the tax implications of a loan is also a good gesture. Asking yourself if you will actually be able to pay off the loan early will help you make the right decision.
Conclusion
Now, if you're looking to buy a home, you have a pretty good idea of what to expect. You know what loans to choose, how to choose them, and also how to find the best mortgage lender.
You can use this information to compare the best deals out there.
Make sure to watch out for the small details, and don't forget to double-check the numbers.
A comparison table and calculator can help you with these tasks, and a mortgage broker can help you determine where to go next.
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