What You Should Know About a Mortgage

While renting comes with its own list of benefits – low maintenance, few unexpected home repair costs, no taxes and moving flexibility – there are benefits to paying a mortgage over rent each month. Mortgage payments are often comparable in cost per month to rent for the same size home, yet these payments are an investment. If you take out a 10-, 15- or 30-year mortgage, there is an end in sight to paying for your home, while renting never ends. Other pros of a mortgage over renting include:

• Possible federal tax deductions on interest and property taxes paid
• Possibility of lowering your monthly payment if interest rates decrease
• You will have a tangible asset, usually worth much more than you originally paid, for the years that you pay your mortgage

For many, investing in a home makes sense and is part of a long-term plan for financial security. However, it is also important to know what to look for in a mortgage and the best way to plan for taking on this large financial responsibility.

When you see advertisements for financial institutions offering mortgages, interest and APR are often the selling points. However, they are not the same thing. The interest that is applied to a mortgage is what will determine how much is paid per month for the loan, but annual percentage rate or APR is what really matters. APR is how much the mortgage will cost you per year, including the interest on the loan, fees, closing costs and discount points.

When shopping for a mortgage, APR is the key to finding the best rate. Two banks may offer the same interest rate, but when all is said and done, APR will determine how much you will pay for the loan over the entire term. You may find that two financial institutions offer the same interest rate, but the length of the loan is longer or monthly payments are higher with one versus the other due to a difference in APR.

There are many different types of payments to consider when buying a home. This first is the down payment. The standard down payment for a traditional mortgage is 20%, but this is not set in stone. While 20% is ideal to avoid paying private mortgage insurance or to get a better rate, it is not always necessary or the best strategy for every home buyer. It can take years to save up a 20% down payment, especially when still paying rent. For many, paying mortgage insurance makes sense instead of throwing away years of rent payments that do not go toward their goal of owning a home.

Monthly payments are the other consideration when obtaining a home mortgage. It is important to be realistic when determining what you can afford. Think of the future and how changes in your life may impact your income. Also consider the other financial goals you have beyond just paying your monthly living expenses. Finding a mortgage payment that fits your lifestyle now, and in the future, will help ensure you do not bite off more than you can chew and protect your long-term investment in a home.

The final payment consideration is a balloon payment or paying off your mortgage completely. Some mortgages can include a balloon payment – usually paired with a lower interest rate for a short term, then the balance of the mortgage is due at the end of the term. While most people refinance these loans into a conventional mortgage, some may consider paying off the balance if they have the financial means to do so. However, paying off a mortgage does not always make financial sense. When interest rates are low, like they are currently, it can be a better financial strategy to place money in higher-interest investments versus paying off a mortgage.

At Galaxy Lending Group, we offer affordable mortgage options for potential homeowners in all different walks of life. Our rates are competitive, and we guarantee transparency with our rates to help you find the best mortgage to suit your needs. If you are ready to make the move to homeownership, contact our team to begin planning for your future. We offer conventional, FHA, adjustable, fixed, USDA and jumbo mortgages in a variety of options, all available through our convenient online approval process.