When choosing a mortgage loan, it’s easy to feel overwhelmed by all the options. But by focusing on a few key things, you can make a decision that works for you now and in the future. Here are five important things to keep in mind:
- Interest Rate: Fixed vs. Variable
Think about whether you want the certainty of a fixed rate or if you’re okay with a variable rate that can change over time. Fixed rates give you predictability—your payments stay the same, which can be comforting if you want stability. On the other hand, variable rates can start lower, but they come with the risk that rates might rise later, making your payments higher. What makes you feel more comfortable with your finances—knowing exactly what to expect or the chance to save with a potentially lower rate (if rates stay low)?
- Loan Term: How Long Will You Be Paying?
The loan term is how long you’ll be paying back the loan, typically 15 or 30 years. Shorter terms (like 15 years) mean higher monthly payments, but you’ll pay off the loan faster and pay less in interest over time.
Longer terms (like 30 years) have lower monthly payments but will cost you more in interest in the long run.
Ask yourself: Are you okay with higher payments now for a faster payoff, or would lower payments give you more financial breathing room?
- Closing Costs & Fees: The Hidden Expenses
Be sure to ask about closing costs—these are the fees you’ll pay upfront when securing the loan, and they can be surprisingly high (anywhere from 2% to 5% of the loan amount). It’s important to factor these into your budget. Some lenders might offer lower rates but charge higher fees, so the deal isn’t always what it seems.
Make sure to get a Loan Estimate or Good Faith Estimate from your lender so you can clearly see the costs.
- Prepayment Penalties: Can You Pay It Off Early?
If you plan to pay off your mortgage ahead of schedule—maybe by making extra payments or refinancing—it’s important to check if your loan has prepayment penalties. These penalties can add extra costs if you pay off your loan early, so you’ll want to understand if that’s something you’re comfortable with. Some loans offer more flexibility, which could be important if you want the option to pay down your mortgage faster later.
- Loan Features & Lender Reputation: Are They on Your Side?
Does the loan come with any special features, like the option to make extra repayments or take a break from payments during tough times? These features can make a huge difference depending on your situation.
Also, look into the lender’s reputation. Are they known for good customer service and clear communication? You’ll be dealing with them for years, so make sure they’re someone you’d feel comfortable working with.
In the end, this is a big decision, but if you focus on the things that matter most to you—whether that’s a predictable payment, flexibility, or how much you’ll be paying in the long run—it can make it a lot easier to choose the right mortgage for you.