Getting a Mortgage? 4 Factors That Will Influence Your Terms

factors that will affect your mortgage

If you’re looking at buying a home, chances are you’re also looking at taking out a mortgage. With so many options available – notwithstanding all of the technical industry jargon, it can feel overwhelming when researching.

Mortgages are typically repaid over 20-30 years so the one you decide to go for is a big decision. To help you get your head around all things mortgages, here’s a breakdown of 4 factors that will influence your mortgage terms and rates.

By understanding these factors, you can take better control of your finances and empower yourself to find the best mortgage possible, saving money when you buy the home as well as over the long run.

#1 – Credit Score 

Your credit score is a number that represents your financial responsibility based on the information in your credit report. This includes how much existing debt you have, if you’ve been consistent with payments, and if other people have had any issues paying back debt to lenders under your name.

The higher this number is, the better the chance of a mortgage company offering lower rates. This is because mortgage companies see those with high credit scores as low-risk investments.

On the other hand, those with lower credit scores may be considered a higher risk and could pay more in mortgage interest rates.

Ultimately, a mortgage term is a contract between you and the lender, so it’s important to have a great credit score to ensure both parties are protected in case of any unforeseen events. By having a solid credit score when applying for a mortgage, you can save yourself a lot of money in the long run.

Some ways to improve your credit score before applying for a mortgage include:

  • Paying all bills on time, every time
  • Keeping old credit accounts open and in good standing
  • Not opening too many new credit accounts at once

#2 – Home Loan Type

There are various mortgage types available these days and each one comes with its own set of terms, rates, and benefits. Your home loan type will have a big influence on the mortgage rates and terms you’re offered.

Two common types of Australian mortgages are:

  • Fixed-Rate Mortgage: The interest rate is locked in for a set period of time, usually between one and five years.
  • Variable Rate Mortgage: The interest rate can change at any time during the loan term.

It’s important to understand the differences between these two types of mortgages, as well as their benefits and drawbacks before you decide which one is best for you.

If you’re unsure which home loan best suits you, there are plenty of online resources that can help you find the best possible deal. For example, the Joust online Australian mortgage marketplace allows you to find the best possible home loan deal based on your financial obligations, needs and wants.

#3 – Loan-to-Value Ratio 

The mortgage loan-to-value ratio is the mortgage amount divided by the appraised value of your home. Therefore, home location can play a significant role in determining mortgage rates and terms.

For example, if someone were to take out a $200,000 mortgage on a property worth $250,000, it would be considered 80%. However, this percentage can increase up to 95% in some cases, which means you could borrow more than the home is actually worth.

When determining mortgage rates and terms, lenders consider your loan-to-value ratio a critical factor. Generally speaking, the higher this number goes, the less likely you are to qualify for low-interest rates or favourable mortgage terms.

A very high loan-to-value-ratio can also result in a greater chance of your mortgage not being approved at all. There are a few ways to decrease your loan-to-value ratio and increase your chances of a mortgage approval:

  • Appraise the home for more than it’s worth.
  • Put down a larger down payment – usually, 20% is ideal but can be higher or lower depending on the situation.
  • Get a co-signer who has good credit.

#4 – Home location 

Where you live makes a significant difference when applying for a mortgage. Different locations typically have higher or lower housing costs depending on the demand and availability of homes.

This means the lender must be able to recoup their investment in a shorter period of time, making mortgage rates higher. Mortgage lenders also consider the potential risks associated with lending money in certain areas.

For example, suppose you live in an area prone to natural disasters or has a high crime rate. In that case, the lender may increase your mortgage interest rates to protect themselves from the potential risks.

However, some mortgage lenders will work with you to get lower mortgage rates if your home is located in what’s considered a “desirable” area.

So by understanding how location can affect mortgage terms and rates, it allows homeowners to understand where they should live depending on the type of mortgage deal they want.

In summary

In conclusion, there are a variety of factors that can influence mortgage rates and terms beyond just credit scores, which is why potential homeowners need to research the market thoroughly before applying for a mortgage. By understanding how location impacts mortgage loans and home loan types, mortgage lenders can more accurately determine mortgage rates and terms.

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