One of the biggest dreams for any adult is to buy their own homes where they can live for the rest of their life and grow a family. One main concern that comes with the purchase of the house is the mortgage rate.
Mortgage can be defined as any amount sanctioned by the bank against any immovable asset like any house or commercial property. There can be a few factors that affect the mortgage of a home. Understanding them can be helpful for beginners planning to buy a house.
The rate of interest is highly dependent on a person’s credit score. The credit scores are scrutinised by the bank before an interest rate is set. If one has a higher credit score, they tend to have a lower interest rate and vice versa. Before going to buy a house, it is important to check your credit report for errors and rectify them. The best way to make sure your credit scores remain high is to plan well ahead of time. For instance, if you have planned to buy your dream house in five years then your sole objective should be to pay all credit card bills, utility bills, premiums on time so that your credit scores stay at the top. The better the credit score the better the candidate you are for getting a mortgage with the lowest rate of interest.
The down payment is the initial amount of money that is paid for the house. This amount generally consists of a portion of the total price of the house. It is advised to put down at least 20% of the total price. This gets rid of the PMI and your interest rate is much lower. Saving up money for a higher down payment, in the beginning, is a better choice. The initial expenditure might be a bit more but the annual instalments are reduced. Here also the formula of “plan well ahead of time” implies. As soon as you have made up your mind to buy your dream house you should start saving. This saving will help you make a bigger down payment and you can save yourself from paying higher mortgage rates.
The loan term is the total duration during which the loan is paid back. If the loan term is bigger, the annual instalments are reduced since the same amount of money is paid over a longer period. However, the interest rate is lower if the loan term is shorter. Based on your income sources you can decide if you are comfortable paying the loan for a longer term because that will help you manage your other finances well.
Banks offer two types of interest rates which are fixed and adjustable. The fixed interest rate remains the same for the loan term. The adjustable interest rate depends on the market and fluctuates depending on the rate offered at that specific time. So think about what interest type would best fit your mortgage requirement. Fixed interest types are generally a safer option.
The above factors should be properly considered before you go to buy a house.