When it comes to home loans, it helps to understand your options. That way, you can choose an option that works best with your finances. Here's what you need to know about home loans:
Mortgage Term Length
Your first decision is how long of a mortgage term you will want. The longer the term, the lower your monthly payment. However, if you choose a shorter term, with a higher monthly payment, you will end paying less over the course of your mortgage.
It's a good idea to run a few scenarios with you lender. You need to figure out what is most important to you right now. Are you worried about monthly cash flow? If so, then a longer-term loan might be right for you, since you will be able to handle the payments and still have plenty of resources for other expenses.
However, if your priority is paying off your home loan as quickly as possible, then a shorter-term makes sense. You will likely pay less over the course of your loan, potentially saving thousands of dollars. It's a trade off between more liquidity and flexibility now, or getting the loan paid off earlier (for less).
Getting the Best Interest Rate on Home Loans
You might also want to consider how you can get the best interest rate on your home loan. A good interest rate can make a big difference. Even a 1 per cent difference in interest rate can mean a savings of thousands of dollars over the life of your loan. It's important to see if you can get a good rate. Often, you'll get a better rate if you choose a shorter term, but you can still get a decent rate on a longer-term loan.
If you want the best interest rates, you need to show that you are financial responsible. The best way to do this is to make your payments on time and in full, as well as keep your overall debt level fairly low. You want to show that you will be able to handle the payments so that the lender will be willing to front you the money.
It can also help if you have “skin in the game.” If you are willing to put a larger down payment on your home, you can get a better interest rate, as well as get a smaller loan. This can help you in terms of lowering your monthly payment and/or paying off your loan a little bit faster.
Home loans aren't entirely set in stone. You have the ability to look for the right home loan for you, and consider what type of loan with best suit your finances. Think about what you need right now, and what you will likely need in the future. Shop around for the best rates and other terms so that you can get the deal that is likely to work out the best for you and your finances.