Your Mortgage Is Probably Costing You More Than a Payday Loan!
While it may seem pretty simple to get a mortgage, you actually need a high-level qualification in order to really understand a mortgage contract. Typical mortgage contracts happen to be far more complex than people generally believe. Don’t take your mortgage for granted, because picking the wrong kind can wind up costing you up to twice as much as you actually borrowed in the first place! Have we got your attention yet?
Your Mortgage Contract
Considering that you have to be a second-year A-level or even a Year 13 student simply to understand the terminology used in a typical mortgage contract, and considering that only a fraction of the population has such qualifications, it means that most people do not understand their mortgage contract at all. In fact, let alone understanding it, have you read your own contract if you have one? Unlikely. The problem is people not knowing the importance of reading their mortgage contract, the use of too much terminology and jargon in the contract, and also the manner in which mortgages are presented. All of this comes together to explain why so many people enter into agreements they don’t fully understand when it comes to mortgages.
Mortgages and Payday Loans
When mortgage loans are presented they are presented with the focus placed on the interest rate rather than on the total cost of the loan over the loan term. Payday loans are another financial vehicle that carries a bad reputation not just because of how much borrowers wind up paying but also because of the interest rates that exceed 1%. But the interesting thing is that if you compare the total amount payable with the APR of a payday loan, you will find that mortgage loans actually cost more than payday loans are allowed to charge!
When Does Mortgage Cost Double?
You probably signed up for a high-rate mortgage over a very long loan lifetime, since the monthly amount payable was more attractive. However, the overall cost of such a set up easily amounts to double your initial loan amount. An example of such a situation is taking a mortgage loan of $200 K and raising a $20K deposit. Thus, you require a mortgage product with a 90% loan to value and you opt for a 5-year fixed rate to protect yourself against fluctuating interest rates. You also opt for a 35-year long term to make sure that your monthly repayment value is as low as possible. This example will mean you borrow $180K, you will likely wind up paying at least double this back to your loan provider.
What Can You Do?
The action that you can take to reduce the total cost of your mortgage loan is to concentrate on the total cost of the loan in the first place, not on the interest rate or the monthly repayments. Most borrowers end up opting for lengthy terms, with statistics reading that 22% of buyers choose terms between 31 and 35 years. Choose a shorter mortgage repayment term and you can be sure that you will clear your loan faster and pay off a far lower total amount to your loan provider even though you pay a higher monthly repayment. Of course, you need to confirm the repayment amount that is affordable for your unique financial situation, otherwise, it will not be of any help.
Switch Your Mortgage
A smart move to make when it comes to mortgage loans is to remortgage each time you reach the end of our fixed-rate period. Most mortgage loans come with an initial period of fixed-rate than can last anywhere from 2 years to 5 years, and after this period, borrowers are shifted to a variable rate. By switching over and remortgaging each time, you benefit form extended periods of time at a fixed rate. It depends on the remortgaging fee, but generally, this tends to be a good idea in terms of cost savings in the long run.
Before settling on a mortgage deal, make sure that you shop around. Statistics reveal that 30% of mortgage borrowers don’t actually find the best deal. This is practically shooting yourself in the foot because there are so many ways of acquiring the information you need. Do your homework and get the best deal! Know your contract and know what you are entering into!
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