What do you think is the biggest factor in determining the price of a mortgage?
Is it:
-The interest rate?
-Your down payment?
-The cost of the home?
-Or is it something else?
The price of your mortgage will have an impact on your payments. Generally speaking, the higher your mortgage is the higher your payments will be. For example, if your mortgage is $1 million dollars, your payments are going to be higher than if your mortgage was One Hundred Thousand Dollars ($100,000)… all things being equal.
One thing is for certain and that is, many homebuyers want to keep their monthly mortgage payments as low as possible if they can.
Why would you get a mortgage in the first place?
Imagine a scenario in which you had so much cash available that you were able to pay for your house in full. Incredible to imagine, isn’t it?!
If the cost to purchase your home was $275,000, and you had $275,00 all in CASH, would you use all of that cash in order to buy your home? Many sophisticated investors would say “NO” to this. They would use some money towards a down payment, and then take out a mortgage just like everyone else.
What are the biggest factors in determining the price of a mortgage?
Mortgages can be really confusing. We get it! With so many lenders and so many online ads for mortgages that we see daily, it is easy for someone to get even more confused.
One factor that we want you to pay close attentino to is the the APR, also fondly referred to as the Annual Percentage Rate.
What is the (APR) Annual Percentage Rate?
This is the cost you pay each and every year to borrow money, including all of your fees, expressed as a percentage. The APR is essentially a measure of the cost to you of borrowing money. It contains not only the interest rate but also the fees that you have to pay in order to get your loan. Confusing, right?
Lender Fees
There are a lot of lender fees that you should be aware of. Sometimes these fees are upfront and sometimes they can be hidden. They include, Broker fees, underwriting fees, loan processing fees, closing fees, credit report costs, and application fees. Yikes!
These fees have been fondly nicknamed as ‘junk fees’. Jokes aside, and to be fair, you do want to make sure that your loan is processed properly, and that you close on your home on your actual closing date. The job of the lender is very important and you want to make sure that you choose a competent one. But remember… don’t forget that it is all about the APR. Keep a close eye on that!
So here you have it… The Biggest Factor In Determining The Price Of A Mortgage is the APR.
Or is it?
What about your Available Down Payment & your Loan To Value
Some say that the biggest factor in determining the price of a mortgage is your down payment.
The more money you put down, the ‘safer’ the loan is in the eyes of your lender. If a loan is ‘safer’, then you are likely going to get a more favourable (lower) interest rate.
Credit
Some say that the biggest factor in determining the price of your mortgage is your credit score.
Lenders will use your credit report when you apply for a mortgage. Based on your overall credit rating, they will make a determination on your interest rate. For example, someone with an excellent credit history is likely to get a more favourable interest rate than someone with a poor credit history.
Property Type
Some even say that the biggest factor in determining the price of a mortgage is property type. Sounds weird doesn’t it? Well did you know that lenders look at different properties with varying levels of risk? For example, a single family home will be a less risky property versus a multi unit building. It is just the way it is. Not all properties are treated equally. Welcome to the world of mortgages and real estate!
The length Of The Mortgage
It is common that you are able to customize the length of your mortgage term. Common lengths are ten, fifteen, twenty-five and thirty years.
If your mortgage term is shorter, you will likely get a lower interest rate. However, it is important to know that if you shorten the length of your mortgage term, your payments go up dramatically. Be careful to review all of the numbers before you make a change like this. You can talk to your lender and ask them to do some calculations.
Lastly…
Lastly, the biggest factor in determining the price of a mortgage is the state and zip code that you are buying in. Some say this is true, while others disagree. We don’t think that this is the biggest factor, but it definitely influences your interest rate.