Applying for a home mortgage can seem complicated and confusing, and you may conduct research to clear the air about some of the concepts that you are most unsure about. However, between the information you receive from family and friends and the false information floating around online, you may receive some false or misleading information about mortgages. Clearing the air is important so that you have the best information available about mortgages. These are some of the most common myths that you may have heard about home mortgages.
The Lowest Interest Rate is Always Best
When you shop around for interest rates, you will see that most advertised rates are within about one-quarter to one-half percent of each other, and you may have heard that even a one-eighth difference in rate can add up to a significant amount of extra interest charges over the life of the loan. This is true, but the lowest rate is not always the best option. The lowest interest rate often has higher fees because the fees have been used to buy down the rate. Buying down the rate makes sense if you have the funds available up-front for the additional closing costs and if you plan to hold the loan for the long-term. However, most people will move or refinance the loan within a few years, so it may not make financial sense to pay the money to buy down the rate. You can use a loan amortization calculator online to determine the difference in interest charges to determine how long it will take you to recoup the money paid in to buy down the rate.
The Longest Term is the Best Option
The longest term will inevitably give you the most affordable mortgage payment, but it also comes with the maximum interest charges. If your goal is to keep your mortgage payment low, then the longest term is the best option. However, if you want to build more equity and reduce interest charges, the best option is a shorter-term loan. You can use an online loan calculator to determine how much more quickly equity will accumulate over the first few years of the loan to determine if a shorter term is a better option for you.
Pre-Qualification Means You Will Be Approved
Some people believe that pre-qualification means that they have been approved for the loan. With a pre-qualification, you have typically completed a loan application, and the lender has pulled your credit report. However, you will still be required to document everything you wrote down on the loan application, including your income, your assets, and other related information. If you are unable to document the information on the loan application, you could be denied credit.
A home mortgage is among the most significant debts that you will take on over the course of your life, so you understandably want to make a wise and informed decision about your mortgage. With these common myths debunked, you will be able to move forward with your mortgage plans with greater confidence.