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You'll have to decide on an amortization period (the length of time it will take to
completely pay off the mortgage) and the term, or length of time each mortgage agreement
guarantees the interest rate.
Before you go to a financial institution or mortgage broker, keep in mind that there are
many mortgage options available. Shop around for the best rates and the best terms. Negotiate.
Everyone wants your business, but it's up to you to look after your interests. Of course, the
key thing to remember is to negotiate a mortgage that fits into your lifestyle, and doesn't
take over your life! Your mortgage broker can help guide you through this process and supply
you with information.
Amount of the Mortgage
With lower interest rates, you may qualify for a larger mortgage because your monthly
payments will be lower. But always keep in mind that the larger your mortgage, the more
interest you'll pay in the long run. That simply means your house will cost more. Also, what
if interest rates rise? Will you still be able to carry the payments comfortably?
Down Payments
Before considering any mortgage, consider your down payment. If you're a qualified home
buyer, you can purchase a house with a minimum 5% down payment and sometimes less depending on your lender.
Using the 5% down in my example; on a $160,000 home that would
be an $8,000 down payment, leaving you with a $152,000 mortgage. Assuming you negotiate an
interest rate of 8% for your mortgage, you're monthly payment for principal's interest would
be $1160. Now let's say you decide o wait until you save another $10,000 before you buy because
you think the bigger down payment will lower your monthly payments. Well, at 8%, putting
$10,000 more down on your house will only save you $76.32 per month, you might be better off
saving $10,000 for a rainy day or a vacation or that hot tub you've been dreaming about. With
today's interest rates, it just doesn't make sense to tie up your cash to save $76.32. You
might be better off putting your extra money to work for you in another investment with a
higher rate of return.
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment of the
purchase price, with the mortgage not exceeding 75% of the appraised value. If your down
payment is less than 25%, then you qualify for a high-ratio mortgage. This type of mortgage
requires loan insurance, which can cost an additional 0.5% to 3.75% of the mortgage amount.
With this type of mortgage you could also be limited to a maximum house price.
Pre-Approved Loans - Obtaining a Pre-Approved Mortgage
Why go house hunting only to find that you don't qualify for a mortgage on the dream home
you've found? Having a pre-approved mortgage will give you the confidence of knowing exactly
what you can spend on a home before you start looking. You will also be protected against
interest-rate increases while you look for your new home.
Pre-Approved Mortgage Features to Look For
1. Competitive interest rates. You may be willing to pay a little more to
get the flexible features you desire.
2. A 90-day rate guarantee. This will protect you against rising interest
rates while allowing you to take advantage of falling rates.
3. Flexible payment options. These enable you to tailor the mortgage to
your lifestyle. Discuss payment frequency and lump-sum payment options. Find out if your
lending institution will allow you to skip a payment in special circumstances or double-up on
your payments.
4. Closing Costs: ask about the lender's policy with respect to realty
tax holdbacks on closing.
Back To Buyer Resources
Forward: Types Of Mortgages
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