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Published on October 1st, 2013 | by Pete

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Understanding the Real Costs of a Mortgage

One of the biggest investments that you will ever make is purchasing a home. Since buying a home but can be pretty expensive, most people need to take out a mortgage in order to finance the entire acquisition. Since the mortgage you choose is extremely important, it would be a good idea to spend some time comparing the true cost of all of your mortgage options. A good way to do this is by using a mortgage repayment calculator. There are several factors that you need to take into consideration to determine the true cost of the mortgage.

The first factor that you need to take into consideration is the interest rate. Your mortgage interest rate is by far the most significant component of the overall cost of your mortgage. Even a small difference from one mortgage rate for the next will impact your total cost of the life of the mortgage by a very significant amount. Furthermore the lower that your interest rate is, the more “home” you will be able to afford as your monthly principal and interest payments will be lower with a lower interest rate.

The second factor that you need to take into consideration when you’re trying to figure out the real cost of a mortgage is whether the interest rate is fixed or variable for the life of the loan. Mortgage interest rates today are extremely low, however there is a very good chance that they will increase in the future. Because of this, banks are taking a risk that rates will increase and therefore have to charge higher interest rates for longer fixed-rate mortgages. Therefore if you have a mortgage with a low introductory rate it may actually end up being much more expensive over the life of the loan because the rate could increase if it is not fixed. Be sure to get a full understanding of when the interest rate could increase and what your potential payments could be.

Beyond the mortgage interest rate, other factors that you need to take into consideration to determine the real cost of a mortgage are origination and other bank fees. When getting a new mortgage you will likely spend a lot of money on closing fees, legal fees, appraisal costs, and property condition reports. While these costs are inevitable, they do tend to fluctuate quite a bit from one bank to the next. Because of this it is important that you take these costs into consideration when you’re trying to compare one mortgage offer to another.

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