If you have ever considered applying for a home loan or refinanced a mortgage, you might be aware of the incredibly confusing terms surrounding the whole ordeal. Adjustable rates, APRs, rate risks; we understand your confusion. In this article, we will try to filter out all the noises and focus solely on the 4 pivotal things you should be looking for when shopping for a home loan.
The first thing that borrowers look at when considering a home loan is the interest rate, which is why we haven’t included that on our list. The reasoning behind this is simple; the interest rate can be misrepresented quiet easily.
For example, you might find a home loan with an unbelievably low APR of 3% percent. However, the loan might have a longer maturity period, so you’ll be paying this rate for the next 2-3 decades. The total cost of the loan would be much higher, even with a low interest rate.
This is why we believe that the APR doesn’t give the true picture, as it doesn’t take the time to maturity into account. Instead of using the APR as the sole judging criteria for a loan, check the borrowing period for the mortgage.
Interest Rate Type
Carrying on from the previous point, the interest rate might seem low because of the type of rate as well. An adjustable rate loan would appear to be cheaper on the surface due to the initially low rate, but the rate will rise up throughout the duration of the loan. According to many industry experts, many borrowers often borrow these loans without looking at the total cost of all accumulated premiums. Make sure you are aware of the loan type you are borrowing to refinance or purchase a home.
In all the excitement of purchasing a home, many home owners tend to negate the upfront costs that they will be paying besides the interest premiums. These costs include the procurement costs, legal paperwork and the refinance costs (if applicable). If you are financing these through equity, they will add to the principle amount of the loan. This means that you would also be paying interest on these costs as well, so do take them into account when calculating the total cost of the loan.
While we’ve already discussed how the term period affects the total cost of a loan, another reason why short term loans may prove to be beneficial is because of the higher equity payments. See, in a short term loan, you’ll be paying a higher premium, but a greater portion of that premium goes into building your equity i.e. paying for the cost of the property as compared to a longer period loan.
Calculate what percentage of the payments will be going directly towards building equity and choose a home loan accordingly. You can always contact Todd Frank Home Loans for the best advice. Feel free to contact us at (972) 246-8633 to get the information!