Do you know how important your mortgage rate, otherwise known as your interest rate, is? Before you take out a home loan, you should consider all the options on the market. If you choose a mortgage interest rate that's too high, you could be paying off your loan for a lot longer than you initially expected.
Shopping around for a home loan can help you get a good picture of what you should expect to pay each month, as well as how long you'll be paying that for. Mortgageport has a wide range of competitive mortgage options for people at every stage, whether you're investing, buying a second home, or you're a first-time buyer.
What does the interest rate mean for your repayments?
Home loan interest rates affect the total amount you pay over the number of years it takes you to pay the full amount. Take a $400,000 loan, for example. If you didn't pay any interest on it, you'd be paying back only $400,000, and if you lock into a 25 year deal, your monthly repayments will be $1,333 for the full 25 years.
Home loan interest rates affect the total amount you pay over the number of years it takes you to pay the full amount.
However, if you took out the same home loan with an interest rate of 5.7 per cent, it means you'll be paying an extra 5.7 per cent of the total amount each year. If you pay your home loan off faster, you won't pay as much, although some providers don't allow you to pay the total amount faster without accruing the interest.
Therefore, a 5.7 per cent interest rate on a $400,000 home loan would put your monthly repayments at $2,500 for 25 years and 2 months, according to Finder. For most people, $1,200 a month isn't to be sniffed at – thus, home loan interest rates are an important factor when choosing your mortgage.
Are there different kinds of mortgage?
Depending on your situation, you can choose a variable rate, fixed rate, partially fixed rate or introductory rate mortgage. Variable rates mean the banks can change your interest rates, which is great if they're only going to lower the rates over time. However, they could also raise them. Fixed rate mortgages are good options, but you don't get the benefits if interest rates drop. Introductory rates can seem great with a low initial interest rate, however the interest rate after 1 or 2 years can mean you end up paying far more over the length of your mortgage. Choose wisely!
Before you choose a home loan, consider the mortgage interest rate you're opting for. Think about how long you want to be paying off your home loan and what you want your monthly repayments to be – it's different for everybody. To learn more about your options, and what the best plan is for you, chat to the friendly team at Mortgageport today.