Mortgages
Six Tips that will Get Homebuyers the Best Mortgages
When it comes to mortgages, homebuyers are often at a disadvantage. Often this is because the person purchasing the home has little to no experience or knowledge of the products available. The fact is most people buy one, two or three homes and that's it. But one lending institution may underwrite hundreds or even thousands of mortgages in one week. This certainly gives them the upper hand in this process. Here are six tips that will go a long way to ensuring you get the most out of your mortgage.
Credit Score and mortgages
First things first-a great credit score will get you a great interest rate. As far as mortgages are concerned a lender is going to give the best rate to homebuyers who have a proven track record in making their payments on-time and in managing their finances successfully. There are different scales used for credit scores. As an example, a FICO score of 700 is good and a score between 750 and 850 is excellent. If your score is under 600, you start to look like a credit risk and that will hurt your chances of qualifying for any of the mortgages that offer low interest rates.
The Down Payment Effect
A down payment of 10% to 20% may or may not lower your interest rate but it will lower your payment greatly and it may allow you to qualify for certain programs. Also, homebuyers who bring a hefty down payment to the table will often have their pick of lenders who deal with home mortgages. As an example, a R150,000 mortgage at 6.0% carries a monthly payment of R899.33, while a 20% down payment lowers the mortgage amount to R120,000, which results in a monthly payment of R719.46. That down payment gives the homebuyer an additional R179.87. That down payment saves the purchaser almost R65,000 over the life of the mortgage.
Bi-weekly Payments
Some people opt to pay their mortgages every two weeks, paying half each time. Because there are 52 weeks in a year, those who use the bi-weekly method make 13 payments per calendar year rather than 12. That extra payment goes towards principal and greatly accelerates the loan's payoff date while saving the homebuyer a lot of cash. When paying this way, a 30-year mortgage will be paid off in less than 25 years and the savings is approximately R45,000 on a R120,000 mortgage.
15-year mortgages
Which are better-15-year mortgages or 30-year mortgages? A 15-year loan of R150,000 at 6.00% costs 1265.79 per month with payments totaling R227,841.34. Now consider the 30-year home loan. The payment would be R899.33 a month with the total amount paid being R323,757.28. By paying about R365.00 more per month, home buyers cut 15 years off their loan and save approximately R95,000. Go with the 15-year home loan if you can.
Can Points Payoff?
Just about every lender offers mortgages with points. When homebuyers purchase points, they are buying down their mortgage rate. A point costs 1% of the loan. If your home loan is R150,000, then a point costs R1,500 and it will lower your mortgage rate by 0.125%. To reduce a 6.00% mortgage to 5.50% would mean a purchaser would have to buy four points at a total cost of $6,000. The difference between 6.00% and 5.50% is R899.33 and R851.68. Savings per month would be R47.65. It would take 10 ½ years before the points payoff. Weigh points carefully before investing in them. mortgages with a 15-year term and that are paid bi-weekly offer greater monetary benefits to homebuyers than points.
The 15-year/Bi-weekly Combine
One of the best types of mortgages that a homebuyer can acquire is the 15-year mortgage that is paid bi-weekly. This saves in two ways. Taking a mortgage that runs half of the 30-year term saves almost R100,000 on the example we used above and then making 13 payments per year reduces the payment period to approximately 12 years, saving about R38,000 more.
There Are Many Mortgages for Homebuyers
If you're a homebuyer who is unsure of your options, it's important that you investigate your various choices. Use the six tips in this article to guide you as you work towards securing the mortgage that is best for you. Remember that you do have control in this process.