Which Combination Of Factors Would Result In The Lowest Monthly Mortgage Payment?
When it comes to property purchases, a number of people resort to getting a mortgage. There’s an important question that both prospective property buyers and current property owners need to ask and know the answer to; and this is, “What combination of factors would result in the lowest monthly mortgage payment?
When you know the measures and options you can take in lowering your monthly payments on a mortgage, you are able to plan your finances more strategically. And, should you find yourself in a difficult season with your finances, you’d be able to ease up on the overall household budget by lowering the mortgage payments.
On another note, high mortgage payments tend to eat up a large portion of your earnings, which could leave you with limited funding for the regular and ordinary living costs you need to shell out each week. That’s why lowering mortgage payment costs can help you achieve a more balanced and less stressful means of expending your financial resources.
A Mortgage payment is the monthly repayment amount on your mortgage loan. How then do you know what your monthly mortgage payment will be? It is determined by two components known as the principal and the interest. The amount given to you as loan is the principal and the interest is the charges on the loan.
A high interest rate on a mortgage for instance will require you paying high monthly and whereby the interest rate is low, it will require that you are going to make a low monthly payment.
However, there are other factors determining your lowest monthly mortgage payments such as the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back.
Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, you begin to shop for mortgages to compare mortgage types that is suitable for your budget.
A down payment or equity contribution will lower the monthly mortgage payment. let’s say you want to access a mortgage facility for a house that is worth $100,000 value and you make a 20% down payment which is $20,000, the value of the loan is now 80% , meaning that your monthly payment will now be calculated based on $80,000 loan amount instead of $100,000 house value the down payment will enable you meet some requirement and also indicate your stake in the mortgage loan and your interest in the Home you are buying.
This move will also increase your chance of getting the mortgage loan. A big down payment will reduce your monthly payment. Also Keep in mind, insurance, taxes, and possibly mortgage insurance are also factored into monthly mortgage payments which can either lead to a low or a high monthly mortgage payment.
WHAT IS A MORTGAGE?
A mortgage is a loan designed for the purpose of buying a house. It can also be for Home improvement or renovation, building a house or taken out to buy a land. The term run usually for 25 years but can be shorter or longer. The security of the loan is home until it’s paid off.
If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.
There are two main types of mortgages:
1. Fixed rate mortgage: The interest you’re charged on the loan stays the same and remains constant for the period of the loan regardless of a fall in the rate. Usually it will be stated clearly in their advert as ‘two-year fix’ or ‘five-year fix’, along with the interest rate charged for that period.
The advantage and disadvantage of a fixed rate mortgage are:
Certainty- You have the assurance that your monthly payments will stay the same, and this will help you to budget.
In a Fixed rate deals the interest are usually higher and if there is a fall in the interest rate you won’t benefit.
2. Variable rate mortgages: this is the Mortgage where the interest rate can change at any time after a rise or fall in rate. This also means that there will be an adjustment in your interest rate and monthly payment, where you either pay high or low monthly. It is advisable that you have some savings set aside such that if there is an increase in your monthly payments if rates rise you will be able to pay. The interest rates are usually lower.
The Advantages and disadvantage of a Variable rate Mortgage
Freedom – you can overpay or leave at any time
A drop in rates decrease your repayment
Your rate can be changed at any time during the loan
A rise in rate increases your repayment
WHAT IS A LEASE?
In real estate, a lease is a contract for a specific period of time — often 6 or 12 months — after which the contract expires. It can also be defined as a contract or agreement between parties that specify payment for the use of a property, buildings and vehicles.
WHAT AFFECTS THE SIZE OF YOUR MONTHLY MORTGAGE PAYMENT
– INTEREST: This is the benefit gained by lenders for taking a risk in giving you a Loan The interest rate on a mortgage has a direct impact on the size of a mortgage payment: Higher interest rates mean higher mortgage payments.
Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. On another hand an interest The type of loan you take out will directly affect your interest rate. Fixed interest rates mean you’ll pay the same interest rate over the life of the loan.
Adjustable-rate mortgages, on the other hand, offer buyers a fixed rate at the start of the loan but switch to a variable rate after a certain time frame. This often means you’ll pay cheaper rates at the onset but more expensive
– A DOWN PAYMENT OR AN EQUITY CONTRIBUTION: This is an amount or a certain percentage of the principal loan paid up front. Let’s say you want to access a mortgage facility for a house that is worth $100,000 value and you make a 20% down payment which is $20,000, the value of the loan is now 80% , meaning that your monthly payment will now be calculated based on $80,000 loan amount instead of $100,000 house value. This will also increase chances of you getting a lower interest rate and will reduce your monthly mortgage payment because you are gradually reducing the principal or amount you owe on the loan.
– THE DURATION OF THE MORTGAGE LOAN: This is the length of time the mortgage loan will be paid back. A long-term mortgage loan will reduce your monthly payment, while a short-term mortgage will increase your monthly payment.
– TAXES AND MORTGAGE INSURANCE: taxes, and Mortgage insurance where applicable can affect the size of your monthly mortgage payments when factored into a mortgage loan.
WHAT IS THE BIGGEST FACTOR IN DETERMINING THE PRICE OF A MORTGAGE?
One cannot categorically state a specific factor in determining mortgage prices. There are many factors that can help Lenders set prices: factors within your control, the state of the economy, Financial Market rate determinant, terms of payment, inflation. all of these factors are influenced by the basic rules of demand and supply in one form or another.
INFLATION: A gradual rise in prices of goods and services due to inflation will lead to a rise in the interest rate and erodes the purchasing power over time. Homeowners/lenders will want to charge high as a means of compensation.
They will generally have to maintain interest rates at a level that is sufficient to overcome the erosion of purchasing power brought about as a result of inflation to ensure that the returns on interest rate represent a real net profit for them. Inflation is an essential factor in the overall economy and a critical of mortgage prices.
ECONOMIC GROWTH: Economic growth indicators, such as gross domestic product (GDP) and the employment rate, also influence mortgage rates. Higher economic growth levels generally produce higher incomes and higher levels of consumer spending, including more consumers seeking mortgage loans for home purchases.
Housing Market Condition: Trends and conditions in the housing market also affect mortgage rates. When fewer homes are being built or offered for resale, the decline in home purchasing leads to a decline in the demand for mortgages and pressures interest rates downward.
A recent trend that has also applied downward pressure to rates is an increasing number of consumers opting to rent rather than buy a home. Such changes in the availability of homes and consumer demand affect the levels at which mortgage lenders set loan rates.
Financial Market Determinant
Mortgage rates are tied to the general level of interest rates determined by financial markets. A change in the economy and monetary policy of the government could result in an increase in the interest rates or a decrease. When interest rates decrease, mortgage rates will follow, and vice versa.
Mortgage Payment Term
this is the number of years you have to pay back the loan. The term ranges from 15, 20, or 30 years respectively in length. Interest rates on mortgages with longer terms will generally be higher, because of the risk involved in lending money to someone for a longer period.
However, a longer loan term will result in lower monthly payments because the mortgage payments are spread out over a longer period of time. Shorter terms often have lower mortgage rates and are cheaper over the life of the loan, though you will have to make higher mortgage payments each month.
There are multiple types of mortgage loans, such as a Government Financed Mortgages loan and private owned mortgages or conventional mortgages. A Government-sponsored mortgages programs are designed in such a way that it is easy for people to access the loan.
The loan requirements aren’t as strict and these types of loans don’t require a large down payment and the interest rates are usually low. You will be required to pay extra mortgage insurance under these federal programs, though, which can increase the cost of your monthly payments but they are flexible in terms pricing and repayment.
WHAT IS ONE REASON TO BUY A HOME INSTEAD OF PAY RENT FOR A HOME?
There are times when it is better for a person to rent, but the benefits of buying a Home far outweighs renting a Home. When considering home ownership, you need to weight the advantages and disadvantages for yourself. Regardless of whatever disadvantage that may be home ownership is worth any risks.
When you own a home, you are in control., it is convenient, you have ample space , your mind is at peace because you don’t have to bother about money for\ rent, You have the freedom to decorate it and landscape it as you wish. You are at liberty to have pets and rear other domestic animals if you so wish. You can also rent your Home and make more income. You are not at risk of being evicted from your Home.
Rent payments can be unpredictable and typically rise each year, but most mortgage payments remain unchanged for the entire loan period. If the taxes go up, the increase is usually gradual. This stable housing cost is important especially in times of inflation when renters lose money and owners make money.
There is no excuse in rent payment. Payment may be delayed if you have no resources as at when rent is due but most be paid.
WHY DOES MY MORTGAGE BALANCE KEEP GOING UP?
The following are the most common reasons why your total balance may have increased:
Administration Charges – where charges have been made to cover administration costs, these will be added to the total balance outstanding.
Monthly repayments not received – if the full monthly repayments required are not received by the end of the financial year (e.g. 31 March), these will increase the balance brought forward from the previous year.
In addition, if you have failed to make the required payment on the required date at any point in time your outstanding balance may increase.
HOW CAN I PAY MY MORTGAGE IN FIVE YEARS?
– Set a target date
– Make larger or more frequent payments
– Cut back on your other spending
– Boost your monthly income
– Get a secondary stream of income
– Renegotiate your offer should you be a non-payment defaulter
WHAT IS THE QUICKEST WAY TO PAY OFF YOUR MORTGAGE?
- PAY EXTRA
Divide your payment by 12 and add that amount to each monthly payment or pay half of your payment every two weeks, also known as bi-weekly payment you will make one extra payment each year, saving you e.g. N24, 000.00 and shaving four years off your payment.
- Send extra money for the principal each month.
- Recast your mortgage
- Refinance your mortgage
- Select a flexible term mortgage
- Consider an adjustable rate mortgage
As a potential Homeowner planning to buy a property and you do not have the resources to make an outright purchase, you’re probably going to need a Mortgage loan. it’s important to know the ins and outs of how mortgages work before taking a step.
You have to do a lot of research, be equipped with knowledge on mortgage, shop around to weigh the offers by different lenders and then weigh all of the options before making any commitment.