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Shopping for a new mortgage is stressful, whether it’s your first or your fifth. By researching your options, you can find a mortgage that fits your needs while saving you thousands over the life of the loan.
Positioning yourself for the lowest interest rate you’re eligible for is among the best ways to save on your loan. Even a difference of less than 1% can save you thousands over a 30-year mortgage.
When looking for the most competitive rates, consider:
Most mortgages come with fees separate from your interest rate and repayments. They’re often calculated into a loan’s comparison rate.
Upfront, one-off fees — like origination or application fees — can sound expensive. But smaller, ongoing fees often cost you more in the long run.
Not always. To find out how much a loan will cost you, you need to crunch the numbers. If a loan has a low rate and features you need, then it might be worth paying a small ongoing fee.
Some fees come due only at the end of the loan or when switching lenders. Keep this in mind if you’re planning to refinance your mortgage for a lower rate or shorter term down the road.
Most mortgages require a down payment of 5% to 20% of your property’s value. Generally, the bigger your down payment, the less you’ll need to borrow to cover your home’s purchase price.
It pays to save up as much as you can for your down payment. You’ll not only land lower monthly repayments, but if you put down less than 20% of your property’s value, you’re also required to pay private mortgage insurance — or PMI — on top of your loan.
In some cases, a bigger down payment of 30% or more can unlock lower rates, though that kind of upfront payment may be unrealistic for many first-time homebuyers.
Your repayment structure greatly affects the cost of your mortgage or home loan. Loans on which you’re repaying your principal and interest result in bigger monthly repayments, though they’re often cheaper in the long run.
Interest-only loans tend to result in much cheaper repayments during the interest-only period but higher repayments afterward — which costs you more over time.
The faster you pay off a mortgage, the less interest you pay over time. So even though repayments for a 25-year home loan might look high compared with those of an identical 30-year home loan, you’ll likely save more with the shorter loan.
Here’s what you’d end up paying for a $400,000 mortgage over 25 years and 30 years at 5% interest:
A 25-year mortgage requires higher repayments, but it’s cheaper in the long run because you’d pay less interest.
A mortgage is a big commitment. But by knowing what to look for, you can find the cheapest rates, lowest fees and best terms on your home loan, potentially keeping thousands in your pocket.
Image: Shutterstock
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