It Pays to Plan Your Home Loan

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As not everyone can pay for a home in full cash, getting a mortgage is necessary when buying a house. It also comes with a number of benefits such as tax deductions, borrowing leverage, as well as building valuable equity.

Getting a mortgage can also help you build a higher credit rating over time, especially if you pay your monthly loan payments on time. Obtaining a mortgage seems more practical than paying cash, as it is not a good idea to put all or too much your savings on one asset.

This is especially true if it means extremely tightening your belt or derailing your efforts in saving for retirement or other life goals and building enough savings and emergency fund.

Borrowing a home loan may have its benefits, but you also have to be aware of the challenges that can come up while paying your mortgage. Loss of income, rising rates, and increased expenses are some of the things that can negatively affect your ability to make payments on time.

Planning and managing your mortgage can help, especially in staying financially stable. Mortgage lenders in Salt Lake City share some of the things that can help:

Aim for a smaller home loan

Apart from avoiding financial problems in the future, getting a smaller mortgage or going below the maximum loan amount you qualify for can also prevent you from being house poor. There is also the benefit of keeping your monthly expenses down and having sufficient money for necessities and other things if you stick to a smaller loan.

If the lender tells you that you qualify for a bigger loan, it is best to evaluate your finances and needs before making a decision. In most cases, it is best to take a smaller loan to reduce your risk of missing a payment and be more prepared for emergencies.

Evaluate how ARM can affect your monthly payments

Person paying for his mortgageThere are two types of interest rates you can choose from: fixed-rate and adjustable rate mortgages (ARM). The former has a rate and payment that will remain constant throughout the life of the loan, while the latter can increase or decrease depending on the market trends.

The main benefit of choosing an ARM is having low payments if the rates drop. ARMs also come with a lower initial rate than fixed-rate loans.

While ARMs have notable good points, you should consider the risk, which is paying more if the rates rise after getting an ARM. There is no problem in choosing this loan, but be sure to take extra time and effort in learning how the varying rates could affect your monthly expenses.

Pay your mortgage sooner than expected

Be mortgage-free earlier and own your home faster by paying your loan sooner. Just be sure that your mortgage lender or loan program allows this without extra fees.

Do take note that some banks and lenders come with prepayment penalties if the mortgage is paid off before the agreed time. Ask your provider about this and choose a loan without this fee.

Here a few ways to pay your mortgage sooner:

  • Set up biweekly payments.
  • Make an extra payment each month.
  • Refinance to a shorter-term loan.
  • Put at least 10% (or more) down payment if you can.

Do your homework and learn more about your options to make informed decisions. Be sure to partner with a reliable lender to find out more about the process of getting the right mortgage for you.