Qualifying for a mortgage is not what most homebuyers consider the most exciting part of the purchasing process so the quality of the mortgage payment may not be high on the usual list of priorities. I’m happy to share what I think are the 5 characteristics of a great mortgage payment, especially for the first time homebuyer.
- It’s Affordable
A great mortgage payment should not break the bank. The last thing a new homebuyer needs is to be ‘house poor’ while adjusting to their new life as a homeowner. As there are many other costs and expenses associated with home ownership, it’s important to ensure your new mortgage payment is not going to eat up the majority of your disposable income. Expect the best and prepare for the worst and don’t forget to account for the unexpected. What I mean is, set yourself up with a house savings account where you are contributing a little more than the amount of the payment each month. If you’re mortgage payment is affordable you will always have a little leftover to cover any surprise charges associated with your new home.
- It’s Flexible
Following the topic of affordability comes flexibility. If you do have extra cash available, you should have every opportunity to use it to reduce your mortgage principal if you so choose. I say a great mortgage payment also includes generous pre-payment privileges as every extra little thing you can do to reduce the mortgage balance owing helps so much over the long term. Some discounted low mortgage rates come with limited or no pre-payment privileges and for a rate that is a little higher you would have the ability to double up, make lump sum payments or increase your payment amount. Alternately, if there happened to be a traumatic event happening in your life where you were having a problem making a payment, working with a lender who will work with you in the event of hardship could be very important. Prior to choosing a lender it doesn’t hurt to ask your mortgage professional about each lenders position on mortgage default timelines.
- It’s Understandable
A great mortgage payment is a simple mortgage payment. Before your first payment comes out of your account you should be aware of exactly what is being paid out of it. Does it just pay the principal and interest on your mortgage or does the payment amount include a property tax portion too? Those questions become even more critical if you’re on a variable rate mortgage where the interest costs changes with any increases or decreases in the Prime Rate. Whichever mortgage options you do select, you should know exactly how much you’re paying and what you’re paying for before you commit. This is an important item that should be covered in great detail with your mortgage professional as you are reviewing the mortgage options available to you. Don’t be afraid to ask questions until you fully understand how your new mortgage is going to work.
- It’s Helpful
Your new mortgage payment should get you closer to your financial goals rather than further away from them. If your first financial goal was to be a homeowner, congratulations you’re there! Next up is establishing a strong savings account balance, maintaining a great credit score and increasing your wealth through investments. A great mortgage payment will help you to accomplish these financial goals, allowing you to use the extra cash for vacations, secondary school for the kids and then retirement. The difference between a home that is just affordable and one that is helpful is how you use it. Turn your home into an investment vehicle to help you achieve your financial goals sooner by speaking with an experienced mortgage professional as well as a financial planner about some mortgage solutions that aren’t just simple financing, but part of a larger wealth building strategy.
- It’s Low Maintenance
If your mortgage payment is keeping you up at night, you need to make a change, especially if you haven’t even moved into the place yet. Before the first mortgage payment comes out of your account, you should know what it covers. Low maintenance means something different to every borrower. It could mean a mortgage payment you can easily keep track of so nothing is getting missed or one that doesn’t drain your bank account on each payday or one that is the same amount for the next 5 or 10 years. Whatever you define as minimal effort required, make sure you convey the message to your mortgage professional. This kind of information allows them determine which one product out of the many that both suits your needs and meets your expectations. Even though variable rate mortgage rates are great right now, they are now for everyone as some lenders will increase your payments if the prime rate increases and others will leave the payments the same though your mortgage balance could actually increase over time!
What separates an okay mortgage payment from a great one is how much time you have to find the perfect product for you and your financial circumstances. Getting a mortgage pre-approval allows you to prepare yourself for what to expect and gives you the time to make adjustments to your potential home options before the pressure starts when you find a home and put in an offer to purchase. If you’re past the point of a pre-approval, at least give yourself some time on your financing condition to explore the mortgage payment options available to you before committing to just one.