Mortgage Mystery: Is the Lowest Interest Rate Always the Best?

A conceptual look at variable mortgage rateAnyone who wants to apply for a housing loan mortgage has one ultimate goal in mind: snag the lowest interest rate. After all, the interest is the true cost of the mortgage. But is the lowest always the best? Sure, no one would pick 5% interest rate over 8.75% any day, but looking for the smallest number is a rather short-sighted objective.

If you want to maximize your savings from your mortgage, do the following:

Think About Loan Term

Any honest Lancaster New City review on sites like South Property Sale would say your overall interest expense doesn’t just depend on the rate, but also on the loan tenor. If you can afford higher monthly amortization, choose a shorter mortgage term with a competitive interest rate over a longer term with a marginally lower rate. If you do the math, you’d see that you’re going to save more money.

Pay Attention to Variability

The lowest advertised mortgage rates are usually just a tease. They’re real, but only the least risky borrowers qualify for them. In most cases, they’re only the introductory interest of hybrid loans. In other words, they’re subject to change every few years. If you take one out and market forces don’t go well in your favor, your initial interest rate could sharply increase year after year.

Hybrid housing loans are not necessarily bad; in fact, they can be extremely beneficial to savvy borrowers. If you’re planning to obtain one to save money, make sure you understand the worst-case scenario to prepare your budget for significant interest hikes.

Focus on Balance Reduction

If paying your mortgage off is your ultimate goal, securing a loan with flexible terms should be your main goal. Instead of concentrating on getting the lowest variable interest rate, look for the option to prepay your balance without incurring penalties. After all, you could still save on interest at the same time if the repricing of the low “honeymoon” interest rate wouldn’t kick in for many years.

Negotiate for the least interest rate, but never lose sight of the bigger picture. If you perform this balancing act properly, you can keep your monthly amortization to a minimum without spending more money on interest all in all.

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