in your best interests
3 Terms You Should Know If You Are Getting A Mortgage
Getting a mortgage can be a complicated and daunting process. There's always a load of paperwork to complete, documents to read and procedures to follow. It can be confusing, but if you understand the 3 terms outlined below the whole process will be far simpler for you.
The first term you need to understand is the word “term”. Term refers to the length of time the mortgage will run for – or the amount of time you are making repayments over.
The longer the mortgage, the lower your monthly payment are going to be. But subsequently the more money the lender is going to make from you! The shorter your loan term the cheaper it will be for you over the lifetime of the loan, but when choosing a term you need to ensure it is something you can afford now, and in the future. Setting unrealistically high repayments now will just lead to stress, and potentially missed payments.
The next term is the interest rate on your mortgage and how the lender calculates it. The interest rate is the amount of interest charges/repayments you will pay for the money you have borrowed, given as a percentage – such as 5.25%. Is it a fixed or floating rate? If it is fixed then you know that interest rate will not change for a set period (usually between 6 months and 5 years). This can give you certainty of repayment amount and help avoid any surprises, even if interest rates change around you. You rate is locked in and can't change until the fixed term expires.
A floating rate provides more flexibility (e.g. you can repay it at any time without penalty) but with that comes some risk. As the name suggest a floating rate can change, either up or down, depending on external factors. This can work for, or against you, and it is therefore often prudent to limit your exposure to a floating rate.
Closing costs are the costs involved with finalising your purchase. These can include valuations, builders reports, low equity fees and of course solicitor's fees. Here at The Wellington Mortgage Broker we always aim to negotiate a contribution from the lender towards some of the above costs where possible, but before you place an offer on a property it makes sense to factor these in beforehand as the funds will need to come from somewhere!
If you are a First Home Buyer you can read more helpful tips on our website. Whether it is the Homestart Grant, Welcome Home Loans or top tips in our blog we are always here to help.
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