1. Down Payment: The down payment is how much cash you will put down up front. The rest of the price is how much you will finance with the lender. For example, if the purchase price is $300,000, and you are putting 20% down, that means you will be putting down $60,000, and the loan amount will then be $240,000. The more money you can put down, the lower your monthly payment will be. Basically, the less you finance, the less will be amortized over the life of your loan. Also, you usually get a better interest rate when you put down at least 20%, so that helps out as well.
2. Loan Life: The number of years the loan will be amortized over affects the monthly payments. The longer the life of the loan, the less you pay each month because it is spread out over a longer term. Typically, the longest term is 30 years. Of course, the longer the term, the more total interest you will pay, so be sure to weigh that in as well.
3. Interest Rate: One major variable that will differ between lenders is the interest rate. This is the rate they are charging you for borrowing the money. The interest rate will change your mortgage interest payment each month. The higher the rate, the more your payment. For a $240,000 loan, the payment including just principal and interest at 6.5% would be $1,517. At 7.0%, it is $1,597. A $80 difference per month does not sound like a lot, but over 30 years, that is $28,800.
4. Property Taxes: Property taxes are added into your monthly cost of owning a home either by escrowing it with the lender or by you saving to pay it at the end of the year. The area where your property is located will influence this more than anything. The higher the tax rate and higher the appraisal values, the more dollar amount you will pay each month.
5. Insurance Rate: Similarly, the higher the insurance rate, the more you will pay per month. This is mostly affects houses that are in special insurance areas that need more coverage, like flood zones or hurricane areas.
6. Points: Points are paid by the Borrower in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment.
Getting behind on your mortgage could mean that the lender would take steps to repossess your home. If you are unable to work or have been made redundant then this is the last thing you need to worry about. However providing you look into it, mortgage payment protection would allow you to continue meeting the repayments.
A policy can be taken out to safeguard against the possibility that you might be made unemployed by such as redundancy sometime in the future. It can also be taken out to protect against being unfit for work due to suffering an accident or illness or it can be taken out for all three. The cost of the premium that is charged will be reflected on this. Other factors that determine the cost, is how much your mortgage repayments are and your age.
Mortgage payment protection insurance (MPPI) needs to be considered, as relying on the State to hand out benefits or savings to fall back on could let you down. Savings could soon be depleted if you were to remain out of work or unfit for many months. With the State, help will be given only for the first ?100,000 of the interest part of the mortgage. Even then, you would have to be eligible to claim and must be receiving income support. Having a live in partner in full time work, or savings over a certain amount would mean you would not be eligible. If your mortgage were taken after October 1995, you would also have to wait 9 months before you would begin to benefit.
Policies do differ depending on where you choose to get the quotes for your cover. The high street lenders will charge more for a policy than the standalone providers will. In some cases the difference can be quite a lot so shopping around is essential.
Mortgage payment protection does have a waiting period before you are able to claim. This is usually between day 30 and 90 of being out of work or unemployed. Once the cover has started to provide a tax-free income, it would continue to do so for between 12 and 24 months dependent on the provider. You have to read the key facts of the policy as the terms and conditions do vary from provider to provider. These should tell you how much your policy would cost and make the consumer aware of any exclusions that may be included.
There have been problems in the past with mis-selling. Problems started in 2005 when the Financial Services Authority investigated the sector at the same time as the Office of Fair Trading. It was found there many people had bought cover that they could never be able to claim on. Others were sold the insurance without actually being aware of the fact.
However, those who have lost faith in and do not give mortgage payment protection a second thought should remember it is not the products themselves that are to blame. Mis-selling occurred through ignorance at the time of selling. However, by shopping around and researching your options, you can be sure of getting a quality product.
Both Ki Gray & Simon Burgess are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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