If you have just started the search for a new mortgage you might already be considering just giving up and renting for the rest of your life. How can anyone make sense of all the variables and possibilities on offer and what do those numbers actually mean? How does 5.99% relate to your monthly payment - what does it mean for your bank account's monthly bottom line?
The important things are not to panic and not to give up. Renting may be relatively stress free, but in the end it is money that you are throwing down a black hole - you will never see it again and you end up with nothing at the end of it. Staying the course is tough, but worth it. The numbers can be made to make sense, you just need someone to explain them to you.
The main factors to think about when you are looking around for the right mortgage are the interest rate and the term of the mortgage. The term is the length of time that your mortgage will run for, i.e. the amount of time you will be paying it back for. This could be relatively short, like just ten years, or quite long, like twenty-five years or more. Think about this because you need to weigh up the amount of time you are willing to be in debt for against the amount that you can afford to pay back each month. The shorter the term, the higher the payments, because you are trying to pay back the same amount of money in less time. If you can handle this and you are confident that you will be able to handle it for the next however many years, then I would say go for it. After all, the sooner you are paid off, the better, right?
The question of interest rates is a little more complex, as you have a few options to choose from. Apart from the actual percentage rate that the bank is offering you, you will also often have to choose between a fixed rate and a variable rate. A fixed rate of interest on your mortgage means that you will pay the same amount every month for the duration of your mortgage, regardless of what the general interest rates do. This is great for two reasons. The first is that budgeting is made easy because you know that the same amount of money is going to go out of your account on the same day, more or less, each month for the entire term of the mortgage. The second reason is that if interest rates go up you are completely protected - your monthly payment will not change.
Fixed rate mortgages suck when the interest rate drops below what you are paying because you are stuck with the higher payment. Variable interest rate mortgages mean that your monthly payment will vary with the general interest rate, which is great if the rate goes down, but sucks if it goes up, and also means that you will never know from one month to the next how much your next month's payment is going to be. Bear in mind that it is possible to find mortgages that offer a preliminary fixed rate term, such as the first three or five years of the mortgage's term, and then change to variable interest. This should be considered as it will make budgeting easy at first, and you may be more financially secure by the time it changes to a variable rate.
The important things are not to panic and not to give up. Renting may be relatively stress free, but in the end it is money that you are throwing down a black hole - you will never see it again and you end up with nothing at the end of it. Staying the course is tough, but worth it. The numbers can be made to make sense, you just need someone to explain them to you.
The main factors to think about when you are looking around for the right mortgage are the interest rate and the term of the mortgage. The term is the length of time that your mortgage will run for, i.e. the amount of time you will be paying it back for. This could be relatively short, like just ten years, or quite long, like twenty-five years or more. Think about this because you need to weigh up the amount of time you are willing to be in debt for against the amount that you can afford to pay back each month. The shorter the term, the higher the payments, because you are trying to pay back the same amount of money in less time. If you can handle this and you are confident that you will be able to handle it for the next however many years, then I would say go for it. After all, the sooner you are paid off, the better, right?
The question of interest rates is a little more complex, as you have a few options to choose from. Apart from the actual percentage rate that the bank is offering you, you will also often have to choose between a fixed rate and a variable rate. A fixed rate of interest on your mortgage means that you will pay the same amount every month for the duration of your mortgage, regardless of what the general interest rates do. This is great for two reasons. The first is that budgeting is made easy because you know that the same amount of money is going to go out of your account on the same day, more or less, each month for the entire term of the mortgage. The second reason is that if interest rates go up you are completely protected - your monthly payment will not change.
Fixed rate mortgages suck when the interest rate drops below what you are paying because you are stuck with the higher payment. Variable interest rate mortgages mean that your monthly payment will vary with the general interest rate, which is great if the rate goes down, but sucks if it goes up, and also means that you will never know from one month to the next how much your next month's payment is going to be. Bear in mind that it is possible to find mortgages that offer a preliminary fixed rate term, such as the first three or five years of the mortgage's term, and then change to variable interest. This should be considered as it will make budgeting easy at first, and you may be more financially secure by the time it changes to a variable rate.