For most people, a mortgage is the single largest loan that they will have in a lifetime (by the way, second on the list is car loan ehich is way down). A loan is a scary notion not only when it is taken for the first time but any time. Most people take in excess of 20 years to pay off their home mortgages. In this process lender takes interest on the borrowed amount as well as the original capital.
Do you know that how much most people end up paying (accumulated) at the end of their mortgage term? Well, it depends on the terms and length of the loan. To examplify the point, a mortgage paid off over 25 years (which is average term), you would pay twice the original amount in interest alone. Therefore you would pay $3000 for an original $1000 mortgage. This amount includes oiginal capital and interest. Scary, isn't it? How can you reduce thi figure? You do not take mortgage in the first place is one. Another one is pay off as soon a possible to accrue lesser interst charges.
The best one of them all, if you have to take loan, is to shop around for best terms, mainly interest charges on the loan (as well as pay off flexibility). In crudest terms, the interest charge is the profit your bank charges for taking on the risk of lending you the money. Because you are tking loan against immovable asset (property), the risk is lesser than, say buying a car or starting a business.
If you can not pay the loan back then bank can repossess the property. But that may not be the case for the car which loses value every year, or a business that ay never take off. Because the risk is lower to the bank, interest charges on the home mortgage are gnerally lower as well in comparison to other types of loans. But how much is low enough? It again depends on how much of a risk you or the house is. If you are in a temporary emloyment or low salary, you are fall on the risky side. Same goes if your dream house happens to be in the food plains.
Banks normally charge interst over a base rate - which often happens to be the rate of the central bank of that country. For example, if the central bank's interst rate (called base rate) is 5% then you should expect to pay between 1-3% above the base rate. This is where shopping around comes in.
Check out who can offer you a better deal. Some banks charge an interest rate for the whole term while others charge lower 'entry' rate to get you in the door which goes up later on. Some others offer attractive interst rate but put other conditions on, e.g.
you must also buy homeinsurance from the bank or its partners, you can not pay off before certain number of years, and so on. What is the best way to compare? Ask your mortgage advicer the exact amount you would be expected to pay over the year in the year one to year five. Compare that figure with quotes from other banks.
That should give you a better idea. The other day I was playing with figures to see how can I reduce the overall pay back on my mortgage. I increased the repayment amount by a tiny percentage (say $50 every month) and the over all time I could pay off my mortgage reduced by almost 4 years (keeping all other things same, including that I did not secure on my house etc). This happened because I accrued less interest over the years because I paid off extra amount.
So here is my advice: your mortgage is probably your largest loan secured over your house. Take your time to decide which lender's terms are best for you. I always look for low interest charge over the base rate, no term bindings and a complete flexibility to pay off my loan as and when I can without incurring penalties. Tell your mortgage adviser YOUR terms of the loan and do not let him to tell you what he think is best for you. Most advisors are decent people I have come across many who are driven by their profits and do not hesitate to recommend a product which will give them the largest commission.
Good luck. with your search.
Dan Sherman has started an information based website to offer advice on topics similar to those discussed above. Visit him at his website by Clicking Here (or go to http://www.mortgageguru.info).