People focus mostly on the interest rate when looking for the best mortgage. Other than the interest rate, there are some other variables to consider when looking for a mortgage that is ideal for you. One of the variables that you should consider is the length of the mortgage agreement. There are various options available, so you need to have a conversation with your financial planner to know the reasons why you might like to choose a short-term or long-term mortgage. Here are some considerations to bear in mind:
Do you need to make a long-term commitment?
Most financial institutions offer a 30-year fixed term. This term comes with a fixed rate most times. You should note that this rate is sometimes 1 to 2% higher than a fifteen-year term. When you choose a more extended period, the rate will not change for decades which helps with long-term planning.
Paying for stability.
When you go through the rates of any bank, you will discover that the shorter terms usually have lower rates. Therefore, if you can accommodate rate fluctuations and renegotiation more frequently, you could realize considerable long-term savings through a lower monthly premium. If you merely want to have a rate and stick to it, then choose a long-term, fixed-rate mortgage.
Breaking up is difficult.
Some people have been advised to break their current mortgage and start up a new one at a reduced rate. However, you should know that refinancing a mortgage is not free; it comes at a cost. Your current lender may charge you a fee, and you will pay fees, points, and closing costs for the new loan.
The interest rate differential, also known as IRD, is the difference between your real rate and currently available rate of the same mortgage. Different lenders calculate this penalty differently so ask your preferred lender for their early liquidation or mortgage transfer conditions.
Is it worth moving to a lower mortgage rate?
You should be aware that your lender will charge you based on the higher figure between the two calculations. What you need to do is to compare the amount of interest you will pay over the remainder of your present mortgage and what you would pay at a lower rate when you switch. When making your comparison, you should consider the penalty figure. You should base your decision on the outcome of your comparison.
You should consider switching to a lower mortgage rate if the interest savings is more than the penalty charges. However, you must be sure that there is no other fee attached that may wipe out your potential savings.
Talk to your financial planner today to know what mortgage is best for you.
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