Why Your Mortgage Is More Than Just the Rate

Dated: September 18 2020

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Many of us may have been deceived into thinking that a mortgage contract’s value can be understood by just looking at the interest rate alone. A mortgage includes the full scope of a home loan’s terms, conditions and every last agreement.

The smallest details can mark the difference between a strong and a weak mortgage. Thus, borrowers need to be able to read between the lines to determine whether a mortgage is right for them.

If you’re not sure about the broader elements of a mortgage, the following guidance will provide insight into why home loans are far more than just the rates.


Exploring Interest Rates

Although interest rates are what most people focus on when discussing mortgages, the pros know that this is just one small element of the overall contract. In reality, the interest rate does not necessarily determine whether or not a loan is prosperous. It simply establishes how much interest will be paid on the loan’s principal value.

Don’t be mistaken — interest rates do play a pivotal role in mortgage shopping. It’s just not the totality of the mortgage.

For example, you may be getting a seemingly amazing interest rate, but if the amortization period is too long, you’ll actually be paying a hefty amount in interest. Interest is the interactive element of a loan; it’s not the whole picture.


Interest Can Be Deceiving

Mortgages are symbiotic. The overall experience a borrower has with their mortgage loan is dependent on the contract’s totality. That’s where the phrase "read between the lines" truly comes into play. If you’re focused only on the interest, you may risk being blind to the other aspects of the deal.

For example, a loan may come with high interest rates, but have little to no penalties for paying off the loan early. This means that borrowers actually would be skipping out on interest payments if they do plan to pay it off early, in which case the high interest rates don’t matter as much in the long run.

At the opposite end of the spectrum, a low-interest loan may be stocked with big penalties for paying off the principal early. This would severely limit the borrower’s flexibility and options and could result in overpaying on penalty fees.

In the latter scenario, it’s not the interest rate that made the difference, but the other details. If you view a mortgage only as an interest rate, you could be stuck in a bad situation.


Mortgages Are All About the Borrower

Mortgage loans are as individual as the people who take them out. If the same mortgage contract was given to two people, it’s likely that one borrower would be satisfied and the other totally stumped.

Beyond the interest rate, it’s more important for the mortgage to fit the person it’s funding. All of us are in distinct financial situations with different plans to pay off a mortgage. What’s ideal for one borrower possibly should be avoided by the next.

From this perspective, it becomes clear that the baseline of a “low-interest” loan isn’t always the best idea.

Don’t be sucked into an unsatisfactory deal because you couldn’t see past the attractive rate. For more guidance to explore the totality of a mortgage loan, call us today.

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Janette Friend-Harrington

"Your Legacy Begins At Home" Janette and Doug and their Friend Team have more than a real estate practice; they have a mission called "Your Legacy Begins At Home". The mission combines years of real ....

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