Mortgage Rates: How to Structure Your Loans
In general, people who are shopping around for a mortgage will tend to focus more on the interest rates a particular broker is offering rather than how the actual loan is structured. It is important to know that how you structure a loan, is more important in many cases than the rate itself. To put it another way, how you structure a loan can actually save you more money than having a lower interest rate
In most cases you will be required to put a 5% down payment on your mortgage. There are some brokers that will offer a 3% down payment, however the interest rate will be considerably higher creating higher monthly payments and of course the closing costs will also be much higher as well.
There are a few things to avoid when applying for a mortgage. The first thing you should avoid are pre -payment penalties. A pre-payment penalty is when you are charged a penalty fee for paying off your mortgage early, usually in less than 3 years. Now many of you may be thinking that there is no way that you will be able to pay off your mortgage in 3 years anyway, so that is not an issue.
However circumstances may change , such as the interest rates fall or you manage to get additional credit which will allow you to refinance and pay off your mortgage early. If this happens to be the case, you will not be able to take advantage of these opportunities, because you will be facing a penalty. Some of these penalties can be quite large, sometimes in the thousands of dollars. If you are with a broker that insists that you take a pre payment penalty, just look around and you will find many brokers you can deal with that will not impose that condition.
Another thing to look out for , that are very popular these days, are bi- weekly mortgages. Now there is nothing wrong with making extra payments, but you don’t need to pay some one to make those extra payments. Some brokers will charge extra to structure your loan that way, yet there are plenty of brokers that will structure your mortgage with out charging hefty fees for it.
A good free strategy in regard to this , is to make 1 extra payment a year , this will have the same effect as a bi-weekly mortgage with out having to pay anyone to structure your mortgage that way.
Also another good strategy is to take your payment, multiply it by 13, and then divide it by 12, so for example, if you owe a $1000 mortgage, you could simply pay $1100. every month instead and that will also be equivalent to a bi weekly mortgage plan without paying your broker the extra fees for it.
There are many mortgage products on the market today that can be quite confusing to any potential borrower, the most important thing is to trust your gut instinct. Many times a mortgage broker may tell you not too worry and that you will have no problems with making your monthly mortgage payments, however you must be the judge.
Too often , especially in reflection of this past year’s economic housing crisis, many people have put themselves into debt beyond their means. Don’t allow yourself to be pressured or convinced by a mortgage broker to take out a loan that you feel you will have trouble making the payments.
Right now in America , we have not seen such a high rate of foreclosures as any other time in recent history. So be careful to stay within your financial means and always follow your gut instinct.
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