Thinking about taking out a big mortgage? Do this first

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Are you considering taking out a new mortgage with a higher monthly payment than what you are currently making?

Many people make this decision when they leave a home from home. And, in some cases, it is the right financial choice for their needs. In other situations, however, accepting a huge mortgage payment could spell disaster as it leaves too little room in your budget for other important financial goals.

So how do you know if your large mortgage will work out for you or turn into something you’ll regret? Before you commit to borrowing, there is one simple thing you should do first.

6 simple tips to get a 1.75% mortgage rate

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This Simple Tip Could Save You From Making A Huge Financial Mistake With Your Mortgage

Before taking out a mortgage that will increase your monthly payment, you should give it a try. You can do this by “paying off” the largest mortgage before you actually commit to borrowing.

For example, suppose you are currently paying $ 1,000 per month for your house or apartment and are considering taking out a mortgage that would leave you with a monthly payment of $ 1,500. Continue to pay your rent or housing costs as usual, but be sure to deposit the extra $ 500 you will need to spend on your future payment into a savings account.

By doing this for at least a few months before committing to a larger mortgage, you will get a very realistic picture of what it will be like to live with your new housing payment.

If you can do it without any issues, you may be ready to switch to your more expensive home loan.

But if you’re struggling to keep up financially, you’ve at least figured this out before you agree to a loan that you would be obligated to pay for 30 years.

Of course, as an added bonus, those extra payments you save during your trial can help you make a bigger down payment. This could help cover closing costs or start your housekeeping account. Since the closing costs alone can add up to 2% to 5% of the value of the home, that extra money could really come in handy.

Keep in mind that if you move to a larger, more expensive home, the other homeownership costs besides your mortgage may also be higher. This includes property taxes, maintenance and repairs. You will therefore have to take this into account when making your budget calculations. If you want to be absolutely sure that your new monthly payments won’t become a major financial burden, you can estimate all of these additional expenses and factor them into your trial payment.

Testing your loan payments before you buy a home can save you a nasty surprise. It will also help you make sure that you are truly prepared to commit to a home loan that requires you to pay more each month than your current home is costing you.

Ready for that home upgrade? Make sure you familiarize yourself with how to apply for a mortgage to guide you and help minimize costly mistakes.


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