Negotiating A Mortgage Isn" t All About Rate
Purchasing a home is exciting, regardless of where you are in your life. It symbolizes new opportunity and feels like the start of something new. However, it's easy to get caught up in the rush of purchasing a home and overlook the details of a new mortgage beyond the approval and interest rates.
A mortgage is a big responsibility and it has a lot of strings attached. When you sign a mortgage, you're entering into a legal contract. While the banks may make it seem like they're helping you out, it's important to remember that they aren't doing you any favors. A bank is a business and big businesses are after one thing: profit. While you are investing in your new home, the bank is investing in you, and they expect to make money off your purchase.
This doesn't mean that it's impossible to come up with a mutually beneficial arrangement. It just means that you need to be aware of all the extra details of your contract and what they mean for your financial future. In this article, we are going to go over some of the most common mortgage details that need to be considered.
The first thing to consider is term. There are two basic terms: fixed and variable. A fixed term is a set percentage that you're going to pay over a pre-determined amount of time. This means that you know exactly how much you are going to pay. Variable terms, like the name suggests, vary. They are based on Prime + a pre-negotiated amount. In periods when prime is low, these can save money and often look more appealing than a fixed term, but it means you're on the hook if the rate goes up.
Bear with me through this next bit, because it's important. Let's say you have negotiated a monthly rate of prime + 0.75% on a $200,000 house over 25 years. If prime is 3%, your monthly payments are $1025.11. But if prime suddenly jumps to 5%, your monthly payment also jumps to $1250.04. In a well-balanced budget, this is a huge difference. Prime rates are low in recent years, averaging about 3.25% in the United States, but they are anticipated to rise again in the near future. Could you afford the 2007 prime rate of 8.25%? Using our example mortgage above, those monthly payments are $1,655.95.
Payment flexibility is another factor that needs to be considered in negotiating a mortgage rate. Is there a fee for changing the date of payment? What about a late payment? What happens if you can't pay at all? Different mortgages have varying fees and penalties and it's crucial to understand what these mean for you. Some banks offer flexible mortgages but they tend to come at the cost of higher interest rates.
An additional financial consideration is whether you are able to make additional payments on occasion. Whether it's in your best interest to make lump payments completely depends on your specific financial position, but you'll want to know what your options are before you sign any paperwork. Find out whether you are allowed to make additional payments and if there is a fee attached.
Finally, the day may come when you feel done with your mortgage entirely: either you're paying off the remaining amount or you are selling the property. It's hard to imagine this scenario on the first day you purchase a home, but it's something you need to think about and know exactly what you're on the hook for.
As long as you take your time and properly consider your options, your mortgage negotiation will be an interesting and exciting experience. It's the first step in your new life and we hope you enjoy every minute of it.
A mortgage is a big responsibility and it has a lot of strings attached. When you sign a mortgage, you're entering into a legal contract. While the banks may make it seem like they're helping you out, it's important to remember that they aren't doing you any favors. A bank is a business and big businesses are after one thing: profit. While you are investing in your new home, the bank is investing in you, and they expect to make money off your purchase.
This doesn't mean that it's impossible to come up with a mutually beneficial arrangement. It just means that you need to be aware of all the extra details of your contract and what they mean for your financial future. In this article, we are going to go over some of the most common mortgage details that need to be considered.
The first thing to consider is term. There are two basic terms: fixed and variable. A fixed term is a set percentage that you're going to pay over a pre-determined amount of time. This means that you know exactly how much you are going to pay. Variable terms, like the name suggests, vary. They are based on Prime + a pre-negotiated amount. In periods when prime is low, these can save money and often look more appealing than a fixed term, but it means you're on the hook if the rate goes up.
Bear with me through this next bit, because it's important. Let's say you have negotiated a monthly rate of prime + 0.75% on a $200,000 house over 25 years. If prime is 3%, your monthly payments are $1025.11. But if prime suddenly jumps to 5%, your monthly payment also jumps to $1250.04. In a well-balanced budget, this is a huge difference. Prime rates are low in recent years, averaging about 3.25% in the United States, but they are anticipated to rise again in the near future. Could you afford the 2007 prime rate of 8.25%? Using our example mortgage above, those monthly payments are $1,655.95.
Payment flexibility is another factor that needs to be considered in negotiating a mortgage rate. Is there a fee for changing the date of payment? What about a late payment? What happens if you can't pay at all? Different mortgages have varying fees and penalties and it's crucial to understand what these mean for you. Some banks offer flexible mortgages but they tend to come at the cost of higher interest rates.
An additional financial consideration is whether you are able to make additional payments on occasion. Whether it's in your best interest to make lump payments completely depends on your specific financial position, but you'll want to know what your options are before you sign any paperwork. Find out whether you are allowed to make additional payments and if there is a fee attached.
Finally, the day may come when you feel done with your mortgage entirely: either you're paying off the remaining amount or you are selling the property. It's hard to imagine this scenario on the first day you purchase a home, but it's something you need to think about and know exactly what you're on the hook for.
As long as you take your time and properly consider your options, your mortgage negotiation will be an interesting and exciting experience. It's the first step in your new life and we hope you enjoy every minute of it.
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