Do you think Albert Einstein had problems figuring out his mortgage rates? When one takes a look at all the variables involved in figuring out what is the best mortgage that one should apply for, it would appear that an astrophysics degree would come in handy. But it doesn’t necessarily have to be that difficult.
There are handy tools available to make your life simpler
If you’re considering buying a new home, perhaps for the first time, or refinancing your existing one, you can avail yourself of a mortgage calculator. With this invaluable tool, you can begin to compare the various options that are available to you, and there are many:
Fixed-rate mortgages. As the name implies, you lock in a specific rate for an extended period of time. This is somewhat akin to playing blackjack in Vegas: do you ask for one more card, or wait for the dealer to bust? With mortgages, do you think the rates might go down? If so, you will be stuck with a higher mortgage rate, which isn’t the best feeling. But, depending on the contract, these mortgages can often be broken (if they are the “open” type, without penalty, but if they are the “closed” type there most likely is a penalty). It may be that paying the penalty in securing a lower rate makes sense over time. Once again, the calculator will help you figure it out
Variable rate mortgages: in these cases, your rate may be adjusted monthly, quarterly or yearly depending on where the current financial markets are. Once again no one’s crystal ball is as highly polished as to be able to predict the future. But if you’re willing to take a chance, and think rates will go down, this could be the option for you. Caution: many people got caught up in the riptide of rising mortgage rates during the last real estate crash about five years ago. They found their mortgage payments soaring to unaffordable levels, and often had to abandon their homes, as they couldn’t afford the monthly payments.
Amortization term: as most people need as much time as possible to pay off their mortgage, which can amount to several hundred thousand dollars, typical mortgages run for 25 years. If you win the lottery, or your dear aunt leaves you with a vast inheritance, you’ll want to pay off your mortgage early. Make sure your contract allows you to do so.
Mortgage term: many people sign up for a five-year initial mortgage, even though the repayment or amortization term is 25 years. By signing up for a shorter term mortgage, people have the flexibility of refinancing later, perhaps with better rates, or with more disposable income that allows them to buy a nicer house and a bigger mortgage
Yes, choosing the right mortgage can be complicated. But modern handy online tools help you and guide you through the process so that you can choose the exact mortgage that best suits your needs. And you don’t need to have a Nobel Prize to do so.