Ah, the mortgage conundrum. It’s the single-most critical financial decision you make in your life, and you’re unlikely to ever need a loan this big - unless you’re starting a business. Mortgage loans help people get into the property market, but there are many concerns and things to think about before getting one. Fail to think things through, and you’ll end up buying a mortgage that costs way more than it needs to.
So, ask yourself these three questions before getting a mortgage:
What type of mortgage do you need?
An important consideration, especially if you’re thinking of buying a rental property. You will need a different type of mortgage depending on how you’re using the property you buy. If you apply for a regular mortgage and you end up renting out the home, the lender will likely take action because this voids the terms of the agreement.
Doesn’t this mean it makes sense to get a buy-to-let mortgage in case you want to rent it out? Not always, because buy-to-let mortgages have higher deposit requirements and higher interest rates. So, you don’t want to spend extra money on this type of mortgage unless you need it.
How much do you need to borrow?
Think about how much money you need to borrow for a mortgage before applying. This is something to give a lot of thought to because it can reduce how much the mortgage costs. The mortgage brokers at Mortgages.ca have a useful calculator you can use to figure out the rough costs based on your deposit.
It becomes a case of looking at how much the property costs, analyzing your current financial situation, and finding the perfect balance between the deposit and mortgage loan. Try to deposit as much as you can so you can borrow as little as possible - but always keep in mind any extra money needed for things like repairs, taxes, etc.
Figuring out the amount you need to borrow also helps you determine the best lender sources. For example, if you need to borrow a substantial chunk of money, it’s almost always better to go straight to a bank instead of a different lender.
Who offers the best interest rates?
A mortgage interest rate is basically what you’re paying the lender for borrowing money. If you paid back what you borrowed, then they wouldn’t make anything from the transaction. The interesting thing here is that different lenders will offer different interest rates. You should compare all of them to deduce who’s giving you the best overall interest.
Is it the lender with the lowest rate? Not necessarily. Some offer great low-interest rate deals that then turn into massively high-interest mortgages within a few years. It can actually be cheaper overall to pick a lender with a slightly higher mortgage rate now, simply because it works out cheaper than others in the long run.
Asking these questions helps you understand more about your mortgage situation. You know the type of mortgages you should be looking at, how much you should try to borrow, and where you’ll find the cheapest interest rates. It all joins together to give you a better shot at applying for an affordable mortgage loan.
