What you didn't know about home loans
A home loan, otherwise known as a mortgage, enables you to buy a house without paying the full price out of pocket at the time of purchase.
For most people, buying a home is the biggest financial transaction of their lifetime. If you’re in the market, it’s best to learn all you can about home loans and how they work before getting too deep into the process.
Here are some things you may not know about home loans:
Rates fluctuate daily
When looking for a new home, you may be checking mortgage rates often, as they fluctuate daily. Know that the rate you see today may be different than the one you get when approved for the loan.
The lowest interest rate does not guarantee the cheapest loan
Be sure to consider factors other than the interest rate, including closing costs and the lender’s policy on releasing equity. Also, in adjustable-rate mortgages (ARM), the loan boasting the lowest rate may not be the lowest a few years down the line after it adjusts.
A fixed-interest rate mortgage may ultimately cost you more
A fixed-rate mortgage often has higher exit fees when the loan is repaid. Also consider the possibility of rates dropping throughout your loan’s term, which means you can’t take advantage of the new rates unless you refinance. Finally, interest rates on fixed-term mortgages are generally higher than the initial rate on ARMs.
A lower credit score will cost the borrower
A high credit score can translate into tens of thousands of dollars in interest payments over the life of a home loan. A credit score difference of 100 points can increase a monthly mortgage payment by $150 or more. Chief offers great ways to increase your score, including credit card options with an introductory 0.00% APR* for the first 6 months!
The housing market impacts rates
Lenders need to turn a profit, which means the higher the volume of loans they process, the less they need to earn from each one to remain profitable. When the housing market is booming and lenders are granting loans more frequently, they will be more inclined to offer lower interest rates to borrowers.
You can have your mortgage payments automated
Missing a mortgage payment or paying late can have serious consequences. Avoid this by signing up to have your monthly mortgage payments automatically deducted from your checking account.
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