Advice on Home Loan and Mortgage

Volunteer: Good morning.
Student: It is a pleasure to have you in our office.
Volunteer: It is my pleasure also to meet you today.
Student: How is my buddy, Glen?
Volunteer: He is doing great and please do accept his regards.
Student: After I perused the documents you submitted, I noted that you require a home loan of
$490,00 whose repayment period is 30 years with lending charges of about $25,000 and a
variable interest rate of 4.5%, and among other things, requiring a deposit of $75,000.
Volunteer: Yes it is so.
Student: Your current financial statements give a picture of healthy finances which qualify you
for the mortgage which you applied for. Your savings of $ 78,000 and joint monthly gross
income of about $13,000 look good to any lender.
Volunteer: Does it mean that if we capitalize Lenders Mortgage Insurance on our loan does it
mean that we will use little saving than we had thought?
Student: Yes, if you subscribe to Lenders Mortgage Insurance and it is capitalized on to your
loan, and you have strong monthly income, the deposit required on your loan will come down
and you will therefore use reduced deposit. Lenders Mortgage Insurance protects the lender from
risks associated with the loan. Borrowers who have Lenders Mortgage Insurance are required to
make a deposit of only 20% of the loan applied. For your case you will be required to pay
20%*$490,000 which equals to $9,800 only.
Volunteer: We have chosen to have a fixed rate loan, what is your advice?
Student: Fixed rate loan is good in the sense that it remains the same for entire life of the loan
even if market rates change. On the other hand variable loan rates keep changing depending on
the interest rates supported by the economy, and the amount you pay per month may not be
predictable. I advise you to stick to your choice of fixed rate loan.
Volunteer: What should I do to reduce, in the long run, interest costs and repay off the loan
more quickly?
Student: The best option is to reduce the loan term. Generally, when the loan term is shorter
interest rates are lower. The interest paid over a 15 year mortgage is much less than the interest
paid over a 30 year mortgage and at the same time you have cleared off your loan within a
shorter period.