Our home is usually one of the biggest investments we will have to make in our lives. It usually commands a huge price that is beyond our cash position. Hence, we commonly sort out to home loan to finance it.
The best home loan is the one with the lowest APR or Annual Percentage Rate. It refers to the amount that you will pay each year for the life of your mortgage. The lower the APR, the less you will pay for your home.
Here are some tips to make the most out of your home loan:
Know How Much Do You Need to Loan
If you have some savings on your bank account, you can partially pay your home loan in cash to lessen your interest expenses. Take note that the amount you would use to partially pay your mortgage in cash should be in excess of your emergency funds.
If you are not sure how much you want to borrow, you can use a mortgage calculator to play around with different amounts until you find what works for your budget. Such tool calculates for you and lets you know what your monthly payments will be. Remember that the longer your loan term is, the more interest you will pay over the life of the loan but the lesser monthly amortization you would have to pay. It’s a trade off between your budget and how much you want to save on interest expenses.
Know What You Can Afford
Calculate how much you can set aside and allocate on your budget to pay for your monthly amortization. Remember, don’t just count the cost of the home loan. Factor in all the home costs like home insurance, property maintenance and care, etc. This is purely based on how much income you are receiving from all your sources of income.
Each lender or bank makes decisions differently, which means that shopping around might get you a better offer. The biggest mistake that you can make is to settle for the first offer that you receive from a lender. Moreover, you should know that loans are not just about interest rates; you also need to look at the other loan features such as the loan term and terms of repayment.
Borrowing More Could Be Cheaper
Some lenders charge different APRs depending on how much you decide to borrow. This means that you need to search for the loan amount that will tip you into a better APR bracket. If you want to figure out the best APR that you can get, you should do some calculations with varying loan amounts. Know which option where you can save the most interest expense – a higher loan amount but a lower interest rate or a lower loan amount but a higher interest rate.
Use Your VUL Insurance
If you have an existing VUL insurance policy with a sum insured that is higher or equal to the loan amount you are planning to get, then use it to save on MRI or mortgage redemption insurance by assigning the bank as the beneficiary.
MRI is the insurance that will cover for the balance of your existing mortgage in case you die early before the full settlement of your home loan. It is always included among the expenses that you would incur in case you avail of a home loan from a bank.
Taking out a home loan is a big commitment, so you need to explore all your options before you agree to the terms. Once you get a mortgage, you might be charged extra for repaying it early, so take your time.