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Frequently asked questions about home loans and mortgages

Frequently asked questions about home loans and mortgages

Before you take a mortgage loan, it is always in your best interests that you have a perfectly good understanding of home loans so that you can be able to get the most out of them. Doing so will essentially save you lots of your precious time and money of course as you will be able to get the most fantastic deals on these very important loans that could be the gate pass to you owning a home. Here are some questions that most people always ask about home loans and mortgages and the best possible answers to them.

How much home can I afford?

Knowing the kind of home that you can be able to afford will help you know the right amount of mortgage loan that you should ask for. It would be a financial massacre to ask for more loan than your income can be able to finance. The amount of home you can possibly afford will depend on the amount of cash money you are able to put down combined with the amount that the creditor is willing to lend you. To be on the safe side, there are two crucial rules of thumb you should keep in mind:

i.    You can afford to buy a home which is about 2 ½ times the amount of your annual income in gross.
ii.    The monthly payments you make towards settling your home mortgage, i.e. interest and principal should not be more than ¼ of the total gross pay you earn.

How much down payment should I pay?

While there is really no fixed amount as such to the amount of cash that you will need to have at hand for your down payment, you are in a better position if you can afford to put down a little more money as this will lower your mortgage in turn. Depending on your loan, you can put even just 3 percent, but you should be ready to pay a relatively high rate of interest. In addition, if you pay a down payment less than 20 percent, you will be required to have Private Mortgage Insurance designed to protect the lender just in case you are unable to pay.

Is refinancing my mortgage necessary?

You are in a good position if your home loan has terms like 30 year interest payment at a fixed rate. However, there are certain reasons why you should consider refinancing your mortgage, especially if you want to:

i.    Reduce your monthly payments
ii.    Get some cash from the equity
iii.    Change from adjustable rate of interest to fixed interest rate
iv.    Consolidate your debts
v.    You wish to repay your mortgage off faster

In such cases, it makes sense that you consider refinancing your house loan because as you can see, you stand to reap a lot of benefits by doing so. However, one thing that you should keep in mind is that refinancing costs money and similar to purchasing a new home, you will need to consider the fees charged and points. So, before you make a decision, analyze your situation very well.

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