Top 5 Questions You Must Ask Your Mortgage Provider

UGANDA, Kampala | Real Muloodi News | There is more to finding the right mortgage loan than just securing the lowest interest rate. It’s also important to be comfortable with the company that’s providing the loan to you.

Although many parts of the mortgage process are the same across all lenders, there are some differences. The fees you are charged and the service you receive are worth considering as you shop around.

A home buyer should get as much information as possible before committing to any mortgaging decisions. Here, we discuss five essential questions you must ask your mortgage provider.

What’s the Interest Rate?

The interest rate is perhaps the most obvious question you should ask. The interest rate determines your monthly repayments. High interest rates will chain you to your mortgage, leaving little room for anything else. Low-interest rates lower your overall monthly payments, making them more manageable. So look for the lender with the most competitive rate. 

Beyond the interest rate (and a little less obvious) are the fees and changes you may be subject to. While a bank may offer you a low interest rate to draw you in, they may then sting you on the back-end with not-so-obvious fees.

Ask about application fees, underwriting costs and other fees that are charged at closing. Compare between lenders, and here’s a tip: try negotiate as many of the fees as possible.

Every quarter, Bank of Uganda publishes a comparison report of Commercial Banks’ interest rates and charges to promote transparency and enhance competition in the provision of banking services to the public. This is a great place to start with a side-by-side comparison between the banks and what they charge.

How Much of a Down Payment Is Required?

Typically, most banks offer between 70 – 80% mortgage financing, meaning you have to have bring between 20% – 30% of your own money to the table to get the loan.

Different institutions have different policies for mortgage financing. For example, as of the date of this article, Absa bank offers up to 90% mortgage financing (meaning you need to finance the other 10%), while some banks only provide as low as 50% financing, leaving you to come up with the other half. 

But beware – while it may seem like the lowest down payment is the best deal, there are often some cons to this. One downside of putting less down is that you’ll most likely have to pay for private mortgage insurance. There may be higher closing costs, and an increased monthly payments until you your loan-to-value ratio lowers, so ask about all your options. Lenders tend to offer the lowest interest rates when you have at least 20-30% equity in your home.

What Types of Mortgage Loan is Best for Me?

1. Fixed Rate Mortgages:

As the name suggests, with fixed rate mortgages, payments remain ‘fixed’ at the same rate for the life of the loan or mortgage.

Advantages: Fixed loans are predictable; Your housing costs remain unaffected by interest rate changes and/or inflation.

2. Adjustable Rate Mortgages (ARMS):
With adjustable rate mortgages, payments increase or decrease on a regular schedule with changes in interest rates.

Types of Adjustable Rate Mortgages:

• Balloon Mortgage – Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
• Two-Step Mortgage – Interest rate adjusts only once and remains the same for the life of the loan ARMS linked to a specific index or margin

Advantages: Adjustable rate loans generally offer lower initial interest rates, therefore monthly payments can be lower. They may also allow the borrower to qualify for a larger loan amount.

Ask the lender to thoroughly explain the pros and cons of the different loan types, and which would best fit with your personal circumstances.

Do They Offer Financial Guidance?

You want a mortgage provider to help you as much as possible throughout the mortgaging process. They should be able to answer all of your questions and offer you expert advice on anything and everything you may want to know about. You want a mortgage provider committed to offering you the best value, not just in terms of cost, but in customer service too; they should be willing to guide you through the entire process – even if it means hand-holding you.

How Do They Factor in the Insurance Component?

Considering mortgages are a long-term commitment, you must factor in insurance. A good mortgage partner syncs with insurance products to protect your investment, for example, domestic insurance.

Learn as much as you can about home purchases with a mortgage and the different offers available to you. It will enable you to make informed decisions.