It’s almost impossible to buy a house without a mortgage unless you are substantially downsizing or you have tens of thousands of dollars of cash lying around. A quicker and easier option to move from an apartment to a house is to get a mortgage. But what is a mortgage, and what do you need to know about it? In this article, we’ll review some of the must-knows of homeownership, so you don’t pay more than you have to in interest rates.
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What Is A Mortgage
A home mortgage is a contract between a homeowner and their bank. The bank lends money to the homeowner to buy the house. In return, the bank takes the house’s title as collateral and technically owns the house until the mortgage is paid in full.
Why Refinance Your House
Long story short, homeowners refinance to save money. Let’s do a little bit of math. Let’s say you have a fifteen-year loan on a house you paid $250,000 for with an interest rate of 3.15%. If you refinanced your house for an interest rate of 2.15%, that means you could see a reduction of your monthly mortgage payment by $118.45. Over the life of the loan, you’d see a total savings of $21,320.90. Do you see the benefits of refinancing now?
What’s A Good Refinancing Rate?
Currently, thirty-year loans are appraised at an interest rate of 3.69% and a fifteen-year loan is anywhere from 3.15% to 3.19%. If it’s 1% lower than these values, it would make it worth your time to refinance your house. Different banks offer different interest rates, so it will be in your favour to do your research.
How Much Do Homeowners Pay in Interest
Going back to our previous math problem. If you had a fifteen-year loan of $250,000 and an interest rate of 3.15%, you’d pay $64,018.41 in interest over a fifteen-year period. Now, if you reduce the percentage to 2.15%, then you would pay a total of $42,697.51.
How Long Should You Get A Loan For?
The term of the loan will depend on your income, the price of the house, and your credit score, but keep in mind, the lengthier the loan, the more you’ll spend on interest. A thirty-year loan is also going to have a higher interest rate than a fifteen-year loan because the bank considers it a riskier investment.
Before Getting A Loan
If you’ve decided homeownership is the way you want to go, then before you start shopping around for mortgages, you’ll want to double-check your credit report for any errors. This way, you know that you’re getting the best interest rate for your hard-earned credit score.
Conclusion
Bills, mortgages, refinancing, loans, credit cards, and debt are all part of the joys of adulthood. There’s no escaping the bills, but what if you could reduce them? Setting up a monthly budget is a fail-proof way to ensure you don’t go into further debt and to pay off the debt you already have. Refinancing your home whenever the market allows is also a good way to save money you’d otherwise be paying to the bank.