Making Sense Of Mortgages: How To Evaluate Your Loan Offer

Making Sense Of Mortgages: How To Evaluate Your Loan Offer

Buying a home is an exciting undertaking, but it can also be immensely overwhelming, especially if it’s your first time going through the process. In particular, applying for – and interpreting – a mortgage can be intimidating, not least of all because it can feel like a referendum on your financial success. You hand over information on your savings, investments, earnings and assets, and then the banks offer up a decision. But how do you know if it’s a good offer?

If you’re trying to make sense of the home loan you’ve been offered, there are a number of factors you’ll want to look at. By honing in on these 3 elements, you can get a sense of whether this offer will put you on the path to successful home ownership, or drive you into debt.

Loan Total

When you receive your mortgage offer, two numbers carry the most importance – the loan total and the interest rate, the first of which is fairly easy to make sense of. You’ll need a loan that covers at least the cost of the property less your down payment. If you’re purchasing a home in a competitive area, this may be a substantial loan all on its own. On the other hand, if you’re purchasing a fixer upper in a less expensive part of town, you might not need as large of a base loan, but you might want to tack on some extra funds for repairs.

Reading The Rate

After the total loan, the other important number on your mortgage is the interest rate. Recently, the market has been flooded with ultra-low interest rate loans in response to the global financial crisis. This is, at least in theory, good news for borrowers since it could minimize how much they pay in interest over the long-term. The only applies if that low-rate is attached to a fixed-rate loan, though. Otherwise, you could end up with a different loan rate down the line.

Comparison Strategies

The mortgage total and interest rate are both critical to deciding whether a particular mortgage offer is right for you, but they aren’t the only factors. To get a better sense of your loan options, you may want to apply for a mortgage online where you can more easily compare different loans side-by-side. This kind of comparison is critical because, though you can easily compare the total loan amount and interest rate without any special tools, it can be harder to capture details like monthly or annual fees across multiple documents. Online comparison sites distill this information, which can help you make sense of all the details.

When considering a mortgage, the initial numbers are critical. You want a loan with favorable terms so that, for example, if interest rates hit an upward trend for a few years, you aren’t stuck with a terrible loan that you wish you could refinance. Though refinancing your mortgage may be an option down the line, you don’t want to put yourself in a position where refinancing feels like your only option. Refinancing should be an upgrade, not a financial survival tactic – and when you know how to evaluate your mortgage from the start, it will be.