For most people, the most significant investment in their lives is buying a property. Regardless of the amount of money invested or the size of the property, all these people have one thing in common – they want to be mortgage-free sooner.
Whether you live on your own or provide for a big family, you usually want to have a place to live and call your own. In today’s economy, it can seem harder than ever to afford a mortgage and obtain a place to call your own home.
If you’re lucky, perhaps you’ve inherited a home or the downpayment for one. Aside from inheriting, there are two other main options; winning the lottery (which is not likely) and working hard and saving diligently for such a considerable investment.
For those not so fortunate, a mortgage is one of the most common ways they succeed in gaining possession of a property. The very word is taken from old French and its literal meaning used to be “dead pledge” since mortgages were supposed to last until one dies.
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The Truth About Low-Interest Rate Mortgages
When you start considering your options in terms of mortgages, this kind of market offers, your first obvious choice would be the mortgage with the lowest interest. At first sight and without reading those small letters in fine print at the end of the contractual page, the lowest interest mortgage might seem the best solution which leads to your being mortgage-free sooner. However, there are traps all around.
Mortgages represent a very complicated business, and it should take a significant amount of time and research to determine which one suits the borrower best. It goes without saying that each borrower strives to become mortgage-free sooner, as it brings them specific stability in life. Low-interest rate mortgages often do not live up to their name, and unfortunate borrowers end up paying more than they initially thought they would.
Some things are always the same and do not depend on the current state of the mortgage loan market. If you decide to make more substantial down payment initially, you will reduce your overall costs of the loan.
Likewise, you will probably be offered a bit lower interest rate if your down payment is less than 20% of the total value, but your costs will inevitably rise because of monthly insurance payment you will have to make in that case. If the down payment is less than 20 %, you will have to pay for additional insurance.
Why a Low-Interest Mortgage Rate Is Not the Best Solution
Although low-interest mortgage rates easily lure borrowers simply because they seemingly save their money, they might not be the best solution for you to be mortgage-free sooner. Here are several reasons for that:
1. Hidden costs galore
Some banks or lenders often offer lower interest eye-catching rates. However, as soon as you have swallowed the hook of their offer, you will remorsefully find out that there are additional fees and charges that not only make the offer not so attractive but will cost you more in the end.
While paying off your initially low-interest mortgage, you will have to go through a whole minefield of unpredicted costs, annual fees, loan setup fees, mortgage insurance, paper statements, to name just a few, only to suffer the final blow of having to pay an exit fee to get rid of your mortgage.
When choosing the mortgage that best suits your needs and income, you should pay close attention to what additional costs come together with the low-interest mortgage rate offered to you and choose wisely.
2. Rigid repayments from day one
Putting some extra money towards your loan repayment could be a good idea to become mortgage-free sooner, but there is a good chance it will not be approved by your lender. Many fixed-rate loans do not allow borrowers to make any extra repayments later on.
The best-case scenario is that the bank or the lender imposes a limit on extra repayments that you can make each year. However, exceeding this amount can result in a substantial fee that has to be paid, thus costing you extra money.
In the event of coming into some extra money, be it a bonus at work or an inheritance, you could use it as an excellent investment to become mortgage-free sooner. This option might be unavailable to those locked in a contract that does not allow extra payments.
It is important to note that such pre-payments could be limited to as low as 10/10 instead of the standard 20/20 on regular mortgage products.
3. So-called “Honeymoon rates.”
These interest rates are often ultra-low and look very promising to a prospective borrower, making them easy to be inked. However, they are usually active just for a short period, a year or so (hence the name). When this fortunate period is over, the interest you are paying balloons to a much higher rate, leaving you stuck with much more to spend than you expected.
You should also be aware that many banks or lenders use these rates to lure people in. When offered lower rates for a while, people tend to make hasty decisions, not taking into consideration the rest of the repayment plan, which is what they should focus on.
4. Horrible interest rates any way you go
You can choose either fixed or variable interest rates, and it is not an easy choice to make, mostly because there are too many factors included. Likewise, both can cost you additional hefty amounts of money and will not make you mortgage-free sooner.
It could be tempting to lock in your fixed rate while rates are apparently meager, but you should be aware that optional reverting to variable rates at a later stage bears a cost.
Choosing a Low-Interest Mortgage Is not the Best Solution for Potential Home Owners
You should know that the mortgage industry is as lucrative and competitive a business as any. That said, a low-interest mortgage does look appealing at first sight, but it is often not a good way to become mortgage-free sooner, because it more often than not consists of many hidden and unpredictable costs hard to notice at first.
When choosing the best plan for yourself, it may take some time to find the right and most suitable option, but you need to be patient, consider all the options on the table and by no means rush into such a vast and vital thing.
Seemingly small differences among mortgages could cost you thousands of dollars in the process. It is also a good idea to get independent legal advice on the matter. Do not let the figures frighten or avert you, head patiently into the most significant investment of your life, as there is a mortgage rate that suits you best waiting for you in the vast sea of these loans.
Hopefully, the information in this article has answered any questions you might have on the subject. If however, you are left with any questions, please feel free to get in contact with one of the experts at Citadel Mortgages. We’ll be more than happy to clarify any questions you may have and help you get qualified for a mortgage today!
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