For most people, the feasible way of acquiring a property is by getting a loan to finance it. This type of loan is often referred to as a mortgage. Unlike most types of loans, a mortgage usually spans several years because the capital borrowed is also huge. Even if the duration of the loan is long though, you still need to always stay informed about your mortgage, as well as your current and possible future interest rates. In doing so, you will be able to maximize the loan that you have and save a significant amount of sum in the long run.
1. Explore Online Sources
To always stay informed about your mortgage and know your interest rates, you can always explore various online sources. After all, almost every piece of information that you need is now made available and accessible online. You only need to carefully scrutinize the sources of your information to ensure that you are getting the right message about your mortgage rather than otherwise.
When you explore online sources, there is a great chance for you to find sites where you will be given other mortgage modification options that will make you think twice about refinancing. In this case, you can even look into the use of online mortgage calculators for you to calculate mortgageamounts and interest rates when you opt to modify your existing loan. In doing so, you may even find the opportunity to lower the interest rate that you need to settle in the long run.
2. Consult the Experts
Another thing that you can do to always stay informed about your mortgage and know your interest rates is to consult the experts. In this case, make sure to get in touch with your lender regularly to ask for updates regarding your loan. From time to time, it will help to ask for statement updates that detail how much is left for you to pay when it comes to the principal amount you have borrowed. These statement updates should also bear the total amount that you have already paid, including the interest rate. In this way, you have a better idea of how much you still owe and how long the mortgage will still run.
Apart from your lender, you can also seek the advice of financial experts. They will be able to provide you with sound and unbiased advice on the possible options that you have when it comes to your mortgage. The best part is that they can even help you manage your overall cash flow, ensuring that you can save a decent amount while your monthly mortgage is settled accordingly.
A. Typical Mortgage Questions
In case you decide to get in touch with your lender or consult the experts, you need to be equipped with the right questions for you to gather appropriate answers and be more informed. For instance, you need to be familiar with how a mortgage works beforehand. From there, you will be able to formulate the right questions that will give you a good idea of whether refinancing your home will prove to be more beneficial for instance.
You can also ask about the different types of documents that you need to sign such as the promissory note as well as the mortgage itself. Make sure that you inquire about the difference between the two, and understand the content of each carefully. In parallel to this, you should also inquire about the different types of loans available for you. For instance, you may be given the option of going for an adjustable-rate loan, as well as a fixed-rate loan. Each proves to have its benefits and drawbacks that you need to consider. The most appropriate one usually depends on your specific needs and preferences.
Make sure that you understand the difference between a pre-qualification process, as well as a pre-approval process. When it comes to the latter, the lender may pull up your credit records for them to have a good idea of which types of loans you qualify for. Otherwise, they can simply ask you questions about your finances that you have to answer truthfully. On the other hand, when it comes to pre-approval, it will be mandatory for the lender to pull your credit records.
3. How often should you review your mortgage?
For many people, when the mortgage gets approved, and they eventually acquire the house they want, they no longer take the time to review what they have to pay in the coming years. However, it is a good practice to always be on the lookout for a better mortgage deal. The reason behind this is that great mortgage deals emerge from time to time and in case you are not locked into a fixed interest mortgage deal, then changing lenders may prove to be beneficial for you.
Alternatively, if you’re a small to medium-sized business owner and are looking to purchase your building, or even refinance to a lower rate, it’s always a good idea to stay apprised of current mortgage rates and offers. Bear in mind that rates for business loans tend to be higher than consumer mortgage rates. That said, national banks, credit unions and even the SBA offer great rates on business loans if you have a strong credit profile, time in business that exceeds five years and over 20% equity.
At the very least, make sure to review your mortgage when interest rates change or when the current mortgage deal that you have acquired comes to an end. In case you are not tied to any deal though, it still makes sense to review your mortgage terms at least once a year. In this way, you will have a good idea as to how your current mortgage terms fares with the rest of the deals offered in the market. To ensure that you adhere to this schedule, you can set a reminder to review your mortgage.
4. Main Advantage of Refinancing
When you consider switching lenders, the main advantage that you can reap is the savings that you will be able to garner in the long run. For instance, if you are currently paying a 5% interest on your loan, shopping for a better deal can pave the way for you to settle only a 3% interest rate. In this way, you will have the chance to reduce your monthly mortgage payments. On the contrary, you also have the option to stick to the monthly mortgage amount that you used to settle, but with a lower interest rate, you can effectively shorten the loan term.
A. Refinancing Costs
Keep in mind that before you make any switch or delve into remortgaging, you need to check the fees that you have to pay. For instance, you may be required to settle an early repayment charge if you leave before your mortgage expires. There may also be an exit fee that you have to pay before you leave your current lender.
On the other hand, the new lender may also collect valuation and legal fees but there are instances wherein these are waived after your mortgage has been completed. However, a booking or an arrangement fee may be charged by your new lender. In some instances, these fees are waived but you end up paying a higher interest rate instead. For these reasons, make sure to carefully weigh the savings that you may garner against the fees that you need to settle in switching lenders.
B. Refinancing Requirements
As soon as you are determined to switch lenders to save on your mortgage costs, you need to prepare some documents to go through with the process. In this case, the new lender may require you to produce a copy of your recent payslips and bank statements. This will prove your capacity to pay because of a steady income source. You may also be required to present a copy of your tax returns and business accounts in case you are self-employed or a freelancer.
Apart from your income sources, the new lender will also most likely take a look at your expenses. In this case, they may look into your household bills as well as your other debt repayments. They may also consider your living costs such as your travel expenses, as well as childcare and entertainment. The new lender can even check how you cope with an increase in the interest rate or changes in your lifestyle in case you transition into a single-income household.
5. Mortgage Modification
Aside from remortgage options, you can also consider mortgage modification. However, not all homeowners are qualified for this. More often than not, borrowers facing financial hardships are the people who are most likely to qualify for a loan modification. Some of the proof of hardships that lenders may ask from applicants include loss of income, divorce or separation, increase in housing costs, as well as natural disasters and illnesses or disabilities.
When you modify your mortgage, you will have the chance to avoid foreclosure and keep your home. However, unlike mortgage refinancing or remortgage, you won’t have to replace your existing mortgage with a new one. Rather, your existing lender will adjust the terms and features of your current loan.
A. Home Loan Modifications
Your mortgage lender can modify your home loan in various ways. For this reason, make sure that you get in touch with your lender right away when you are suffering from financial hardship because this can be a viable means for you to keep your home.
i. Reduced Interest Rate
One of the most viable means that lenders do to modify your loan and make it more manageable is to reduce the interest rate that you have to pay. In this case, you will already have the chance to save a hundred dollars in the monthly sum that you need to pay. This is very much similar to a remortgage or refinancing of your loan, only that with a loan modification implementing a reduced interest rate, you no longer have to settle any closing costs or fees.
ii. Lengthening the Loan Term
Your lender can also provide you with the option of lengthening your loan term. For instance, you may have a mortgage that should span 15 years. In this case, your lender can recalculate your mortgage payments for a 25-year term instead. In doing so, the monthly amount that you need to settle for your mortgage will be reduced significantly. Just keep in mind that with this option, you may end up paying a bigger interest over the life of the loan because it was extended.
iii. Opt for a Fixed-Rate Mortgage
Another loan modification option that you and your lender can consider is switching from an adjustable-rate mortgage to a fixed-rate mortgage. While this may not lower your existing payments, it can help protect you from rising interest rates in the future, eventually allowing you to save on your overall mortgage payments in the long run. The reason behind this is that the interest rate of adjustable-rate mortgages tends to change with the market.
For instance, if you are currently paying a 3% interest rate, but then the average rate in the market increases to 4%, then the effective interest rate of your mortgage will also be 4%. When you lock your interest rate through a fixed-rate mortgage, then you are guaranteed that you will pay the same interest rates over the life of your loan regardless of the changes in the market.
iv. Rolling of Late Fees
When you are under financial turmoil, there is a great chance for you to miss payments or accrue past-due charges. These tend to increase over time significantly which is why some lenders propose to roll them into the principal amount that you have borrowed instead. In this manner, these fees will be spread out over your loan term. If this modification method is combined with lengthening the term of your loan, then you may end up paying a reduced monthly mortgage amount even if you owe more in the principal amount.
Make sure that you always stay informed about your mortgage and you have a clear idea of the interest rates that you need to settle at present or even in the future. In this way, you will always be on top of your finances, making the most out of your loan, and saving a hefty sum in interest rate payments. Rest assured that when you explore online sources and consult with the experts, you will have all the information that you need, allowing you to be in a better position to decide what to do with it.