If you have been looking to buy a home and looking for the right lender based on their interest rate offerings, you might be tempted to think that the current time is the right time to buy a home because of the low prevailing interest rates.
When buying a home, low interest rates should not be the sole factor that determines your purchasing decision. You should also consider the long-term repayment commitment that is involved in having a mortgage. You need to consider several factors before deciding to sign your financial future over to a lending institution.
Small interest rate movements can have a big effect
Though the interest rates are still lower, it has started to rise in the last few months. In spite of this, home owners are still willing to go for mortgage loan as revealed by a recent poll of home owners. According to the poll results, 35% of the respondents are not concerned about their ability to make payments even if the interest rate rises. But this attitude can be risky and might upset the balance in your family budget. This can be best illustrated by a following scenario.
Assuming you had taken a mortgage loan of $130,000 for 25 years at 4.5% interest rate. If the current rate of interest goes up to 7.5%, you would have to make additional monthly payments of $230, and your overall interest payments would increase by another $70,000.
This shows how a small change in the interest rates can affect your monthly payments as well as the overall interest payment. You have to take variables like that into consideration when deciding how much you can afford. Young homeowners who are in the age group of 18 to 34 would usually fear the rising interest rates. That’s because they are more likely to have larger mortgage balances. But by having a clear financial plan in place for the next 10 to 15 years, youngsters should be able to overcome this fear.
Getting ready to buy a home
After doing a thorough analysis of your future financial needs, if you have decided that this is the right time to buy a property, then you need to consider the following factors while shopping for your home:
- How much you can really afford
Based on your financial planning calculations, you would have arrived at a mortgage amount that you could afford. If you have not done so, you have to work on the mortgage amount with which you would be able to still maintain a decent life style.
- Making the right trade-off decisions
You need to decide on a smaller home or a bigger home, based on your allowable budget. If you are willing to spend less in the future, you can opt for a bigger home. But if you don’t want to make changes to your lifestyle, you might be required to settle for a smaller home.
- Fitting the mortgage into your long-term financial plan
While determining your long-term plan, you should look at your future earning potential. The monthly payments should not limit your desired lifestyle now or in retirement.
Even after buying a home, its a wise decision to give your mortgage a once-over on an annual basis. Today’s mortgages come with many options such as re-amortization, and making lump sum payments.Immobilienmakler Heidelberg Makler Heidelberg
Source by Christianne Child