Almost everyone who owns a home has a mortgage to pay, if they haven’t finished paying it off yet. Depending on the type of mortgage you have secured, your payment options could be widely different from others.
It is important to understand what you are getting into when you apply for a mortgage, and even more important that you know what to expect throughout the life of the home loan. Read on below for everything you need to know about your future mortgage and repayments.
Three Main Types of Mortgage
Fixed Rate Mortgage: The interest rate that you will secure will stay the same throughout the life of the mortgage. This means that you will always be charged the same percentage of interest even if the market rises or falls drastically during your repayment period.
Adjustable Rate Mortgage: This type of mortgage starts with a low interest rate, which is appealing to many first-time buyers. However, the rate can vary over time, and you may end up paying a much higher interest rate later on in life. While you probably expect that you will be making more money by then, it can still be a bit of burden when the rates go up.
Interest-Only Mortgage: Your mortgage payment will consist only of paying off the interest of the loan. You will not be paying off any of the principal, meaning that you aren’t gaining any of the equity of the house – you are simply pushing the payment of the loan back. This can be set off to pay the interest first and then pay the principal with your later payments or even in one lump sum.
You aren’t just paying the mortgage
Remember that the repayment on your mortgage isn’t the only cost of living that you will incur. There will be taxes, maintenance, utilities, and potential HOA or co-op fees. Make sure to calculate everything that you will be responsible for on a monthly basis so that you can get a real idea of what you will owe. This way you will be better able to budget yourself and decide if a home is right for your current income level.
Refinancing is an option
Perhaps you secured a loan that was perfect for you several years ago, but now you’ve received a significant raise and can afford to pay more. You can choose to refinance your home to get a new loan. This means that you can choose to pay more on your mortgage payments. While that may not sound appealing at first, keep in mind that you will pay of the principal balance more quickly and will end up saving money on interest. As with any debt, it is better to pay what you can afford up front so that you aren’t stuck paying larger amounts of interest down the line. If you feel that refinancing may be beneficial to you, it is a great idea to look into it.