If you have plans of having a comfortable living space for you and your family, owning a home would be a rewarding experience. However, paying for a house isn’t as easy as it sounds. For most people, having a forever home that fits their preferences requires them to get a mortgage loan.
Although many mortgage products are available in the market, finding a good home loan deal takes more than applying to a potential lender. Here are five tips to help you find a great home loan deal:
- Opt For A Floating Interest Rate
Interest rates on home loans can be either fixed or floating. In some instances, the fixed interest rate is lower and more attractive to borrowers than the floating rate. To get the best home loan deal though, it’s advised to go for the floating interest rate.
The risk of going for a fixed interest rate is that a foreclosure penalty can be applied within the fixed loan term. Also, the penalty margin changes once the specified period expires if the interest rate has been offered for a specified period. All this negatively impacts mortgage costs that you can easily avoid by opting for a floating interest rate.
Talk to a credible home loan company like Homestar Finance if you’re unsure how to fixed and floating interest rates work. Lenders will be able to walk you through the whole process and help you decide which one to choose.
- Choose Lenders That Apply Daily Reducing Balance
Most mortgage lenders use the reducing balance accounting method. While this is good for lenders, picking a lending company that applies the reducing method accounting method per day enables you to get the best mortgage deal.
Daily reducing balance allows you to maximize loan repayment by ensuring that interest isn’t charged on repaid amounts. This is said to be not the case with monthly installments. If you prepay a loan interest repayment to a lender who applies a monthly reducing balance, the payment is considered from the next equated installment (EMI) date.
However, this option can only be reliable if you have a constant cash flow available to pay up for the obligations you have incurred.
- Consider The Service Aspect Of Potential Lenders
You need to look beyond a mortgage package to get the best loan deal for your home. Instead of accepting the lowest interest rate offer you get or the first lender that approaches you, take time to learn about the services that different financial institutions offer.
When you sign up for a mortgage, you’ll need many services including provisional amortization, part closure, tax certificates, tenure reduction, and so much more. If you change locations, you’ll need to change your address too. A good home loan deal should include all or the majority of these services.
- Work With A Mortgage Broker
The easiest way to shop for a great home loan deal is to get a mortgage broker. Often, mortgage brokers approach different lenders to get the best home loan terms, including the lowest interest rates.
Before you settle for a lender though, it’s recommended to do the following:
- Ask your mortgage broker for a comparison between different lenders;
- Review the various offers for base interest rate, accompanying products, and margins; and
- Check how many times each lending company under review has reduced interest rates over the past two years.
Further, consider the maximum repayment period offered, whether they have financed a property similar to what you want to buy, and how eligibility is determined.
- Improve Your Credit Score
Your credit score will affect the home loan deal that you get from your financier. Home loan lenders will treat you as a high-risk borrower if your credit score is low and offer you a high-interest mortgage product as a result.
Meanwhile, you’ll be viewed as a low-risk borrower if you have a high credit score. This means your financing company will offer you a low-interest mortgage and better terms. If you want a home loan and have a credit score that isn’t impressive, you can boost it by:
- Ensuring timely payment of utility bills;
- Raising your credit limit; and
- Lowering your credit utilization.
It’d help if you also avoided score adjustments due to late payment or pay-for-delete processes. These processes are considered unfair because the information provided on the credit score report after the adjustments isn’t entirely accurate and may negatively impact your standing.
Final Thoughts
A home loan is the most common financing option for people who want to buy their dream home. Although the presence of numerous lenders in the mortgage market has made home buying a lot easier than ever, getting a good loan deal can be an uphill task. Yet there are steps that you can take to find a great mortgage deal.
If you’re shopping for a home loan, apply the five tips discussed above to increase your chances of getting the best home loan in the market.