Many people aspire to own a home, and many will do whatever it takes to pursue this dream. If this is your case and you do not want everything to end in a nightmare, you must access your situation well so that what is mortgaged is the house and not your life. In other words, you must be clear about choosing your mortgage and negotiating it with the bank.
Common mistakes people make when taking out a mortgage
The most common mistake people make when they take out a mortgage is to look at what they will pay each month and not what they will pay in total. They take the monthly mortgage payment as a reference and leave aside the most important thing, the total interest to be paid. The truth is that the fee is the most variable part of the mortgage, and it is not what you should look at when choosing your mortgage.
Financial institutions are aware of this ignorance with borrowers and exploit it in a very simple way: lengthening the years of the mortgage so that the monthly instalment is lower. Your mind will immediately understand that it is positive because you will be able to pay less each month. Although this way, the bank will also charge more interest for a longer time. Thanks to this strategy, they can offer very competitive loans that will not greatly impact your monthly budget. But in the long term, you end up paying more for your house.
For example, the difference between paying a mortgage of 700 dollars per month for a house of 224,000 dollars to paying 750 dollars translates into 18,600 dollars more, only in total interest. But interest is only one of the things you should consider when looking for financing to buy a house.
In order not to mortgage your life, these are the four things you should focus on to choose the best mortgage.
1. Get the lowest annual interest rate
The difference between paying 2% or paying 2.5% can be huge. For example, for a loan of 224,000 dollars, you’ll pay 101,440 dollars in interest at 2%. And 130,720 dollars at 2.5%.
For just half a percentage point of interest, you will be ‘giving away’ almost 30,000 dollars to the bank. And the difference in the monthly instalment is just over 50 dollars. That is why the interest rate is one of the keys to choose the best mortgage. The lower, the better. (See also: How to get the best possible mortgage rate).
2. Limit the number of mortgage years
As with compound interest when you invest, in the case of loans, the duration of the mortgage also plays a role, but in this case, in favor of the bank. The longer you extend the loan, the more interest the financial institution will charge.
As a rule, you should not borrow for more than 15 years. Although, ideally, you should look for 10-year mortgages. The advantage is that, for these terms, you will not only have variable-rate mortgages, but you will also find fixed-rate loans. The advantage of fixed-rate mortgages is that they allow you to better plan your finances for the future.
3. Compare offers from multiple lenders
A mortgage is a negotiation. That is the first thing you should be clear about when looking for a home loan. In this sense, the bank is not doing you a favor by granting you the mortgage. They are doing business.
So the first thing you should do is get rid of the mentality that the bank wants to help you. As with any other negotiation, the best way to improve conditions is to have options. That is, to have an ace in hand. When you want to choose the best mortgage, those aces are real offers from various entities. You would be surprised at how flexible entities can become when there is competition. Logically, all entities have limits that they cannot exceed. However, these limits can be exceeded when negotiating rather than begging for a mortgage.
4. Go beyond traditional banking
Not only the big banks have mortgages. Even the mortgages that traditional banks have for the general public are different from what a traditional mortgage broker can get.
Going further and working with specialized entities can have a reward in the form of mortgages in better conditions and less bureaucracy.
The best way to find those secret offers is through a specialized mortgage expert like Nesto, who works with several entities. Nesto is an exclusive mortgage solution offering new purchase, renewal and refinances mortgages. They screen the entire market in seconds to present the best possible mortgage rates from 2,000+ mortgage products.