Mortgage Rates - What It All Means

Purchasing a home can be very stressful and scary. Plus interest rates seem to fluctuate quite a bit. When researching for the right mortgage company to work with and the type of mortgage to seek, it is important to know what a mortgage is and the different ways in which you can obtain a mortgage - so that you can buy either your first home or your dream home, or both!

Recently, the central bank raised interest rates at a faster pace than has been experienced in more than a decade. This resulted in the falling of housing prices in Australia. While this is not good for existing home owners, it is a great time for others to purchase homes. Before you obtain a mortgage with the first company you receive a flyer from, remember to do your homework.

First, it is important to determine how much of a mortgage loan you can afford. Ensure to include any insurances, maintenance and upkeep for your home when determining how much you can afford for monthly payments. It is also wise to use a loan mortgage calculator, which most mortgage companies have available on the internet. This will help tremendously when determining how much of a loan you can expect to qualify for.

Next, the different types of mortgages will vary and will depend on your credit score. For instance, if your credit rating is good or excellent, then a mortgage can be obtained at a better interest rate. However, if your credit score is not considered “good”, then chances are you may only qualify for loan with a higher rate of interest. This is because the mortgage companies will see your low credit score as a risk and will charge a higher interest rate.

The higher your interest rate, the higher your monthly mortgage payment - remember, the type of mortgage that you will qualify for, will largely depend on your credit score - the better it is, the lower the interest rate you can receive, and the worse your credit score, the higher the interest rate you can expect to receive.

There are many different types of mortgages out there, such as fixed-rate, variable rate, reverse loans, interest-only mortgages, etc. The most common are fixed-rate and variable-rate. Reverse mortgages tend to be more for older homebuyers, whereas interest-only mortgages tend to gear towards those who want more of a house than they can truly afford at the time, but plan on being in it for a long-period of time, with the anticipation that their income will continue to rise. This type of loan was becoming more popular when the market more stable and homes were appreciating faster rather than depreciating as they are now.

Obtaining an adjustable rate mortgage (also known as a “Honeymoon” Mortgage) or interest-only mortgage are riskier investments and should only be entered into understanding fully when mortage rates could change, when the payments will increase, etc. This will help when making an informed decision about the type of mortgage to obtain.

Regardless, it is important to remember to never borrow more than you can truly afford. The repossessions and bankruptcy numbers continue to increase due to borrowers unable to make their mortgage payments, thus the banks are taking their homes. Again, seek out different mortgage companies, using their on-line calculators to get an estimate of how much of a mortgage you would qualify for and the approximate monthly payments. However, it is important to note that these estimates would not include insurance, taxes or any other fees that would be applied to the mortgage payment.