6 Must-Know Mortgage Facts Before You Buy

Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.

“Get the Right Information”

Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you inform yourself about the factors involved in mortgages.

Industry research has revealed that there are six common mistakes that most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less, and shorten your mortgage length.

Before you commit your hard-earned dollars to monthly mortgage payments, consider these six issues. Effective consideration of these important facts can make your payments work much harder for you.

1. You can – and should – get pre-approved for a mortgage before looking for a home

Pre-approval is easy, and can give you complete peace of mind when shopping for your home. Your local lending institution can provide you with written pre-approval at no cost and with no obligation, and it can all be done quite easily over the phone. More than just a verbal approval from your lending institution, a written pre-approval is as good as money in the bank. It entails a completed credit application, and a certificate that guarantees you a mortgage to the specified level when you find the home you’re looking for.

2. Know what monthly dollar amount you feel comfortable committing to

When you discuss mortgage pre-approval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a pre-approval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.

3. Consider your long-term goals and projected future situation, to determine the type of mortgage that will best suit your needs

There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the appropriate mortgage amount you should be seeking.

4. Make sure you understand which prepayment privileges and payment frequency options are available to you

More frequent payments (for example weekly or bi-weekly) can literally shave years off your mortgage. Structuring your payments to come out more frequently will significantly lessen the interest you are charged over the term.

Authorized prepayment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a similar impact on the number of years you will have to pay, and could shorten your payment term considerably.

These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the right questions to find out what your options are.

5. Ask if your mortgage is both portable and/or assumable

A portable mortgage, where available, is one that you can carry with you when you buy your next home to avoid paying any discharge penalties. This means you will not have to go through the entire mortgage process again unless you are transitioning to a much more expensive home.

An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table, making it much easier and more desirable for a buyer to buy your home, and again, saves you any discharge penalties.

6. Consider dealing with a Mortgage Expert

Dealing with a professional who specializes in mortgages will make a significant difference in the cost and effectiveness of the mortgage you obtain. For example, a mortgage specialist can speed up the process, thereby avoiding costly delays. There is typically no cost or obligation for an inquiry.