By the time you read this post, you may not have a mortgage yet and be thinking about how to start. Although several new alternative financial platforms offer home mortgages, the majority of the prospects will still go to their local bank. Trying to understand the jargon and ancient banking systems can make applying for a mortgage feel like trying to solve a magic cube. To begin with, use a comparison page to filter out a few potential vendors for you. If you give your income, your expenses as well as the price of the property and your down payment for it, most providers should give you an indication
After that, you can either fill out an application online or make an appointment by video, phone, or face to face if you are unsure. This will most likely be the biggest financial commitment of your life. So make sure you take the time to understand the financial service provider you will use to get your funding.
Usually, one of the first things a bank will ask you when applying for a mortgage is what type of repayment you want. There are two options, which you need to know:
Repayment of principal and interest – Every month you pay the principal that you have borrowed for your new property plus the interest that the bank charges. At the end of your loan term, you own the property without making any further payments.
Interest Refund Only – Each month you only pay the interest the bank charges (which means you have a much lower monthly payment than you originally expected), the entire principal is not due until the end of the loan term. Overall, with this option, you pay significantly more interest over the term of the loan.
In the past few decades, many people who have chosen the option of initially only repaying interest have run into financial difficulties at the end of their schedule, so that their house was finally taken back by the bank. Many banks and financial regulators are now issuing stricter regulations for people who only want to repay interest. On the other hand, it can be extremely lucrative for people who buy a property to rent it out.
Another important thing to decide is how long you plan to take out your mortgage. This is the “mortgage term”, 10 years? 20 years? 40 years? The answer depends entirely on you and your personal and financial circumstances.
If you are planning major life events for the next 5 years, such as your wedding or children, then you should consider extending your mortgage term to keep your monthly repayments down. Or maybe you are in the middle of an apprenticeship and know that you will receive a decent wage increase over the next 12 months. In this case, you could opt for a shorter term with higher monthly rates.
Remember, the length of your mortgage term has a significant impact on how much interest you will pay in total.
Perhaps the most important aspect of your mortgage is the product you choose. As a rule, a distinction can be made between two types of products; fixed-rate and variable rate.
Fixed interest rate – your monthly repayment remains the same for an agreed period, e.g. B. 2 or 5 years. This can be very useful for budgeting and for risk-averse people who do not want to take risks when interest rates rise.
Variable interest rate – A variable interest rate can change on a monthly basis, either according to the bank’s own interest rate. You can benefit from lower interest rates, especially in a booming economic environment, but monthly budgeting can be more difficult.
The time period for which you can receive one of the products depends on the respective provider and ranges from one year to a lifelong product.
If you don’t know which of these products applies to your mortgage, you may have been given your bank’s default option. Usually, this tariff costs you much more than other available products after the end of your fixed or variable repayment provided you haven’t agreed to a new one. Most people see how their payments increase and then forget about it completely. If this seems familiar to you, contact your bank immediately, because then it may be possible to save hundreds of dollars per month!
The more you pay upfront, the more you are going to save when paying the mortgage value. You can get in touch with an expert to find out how much you should pay upfront to save a significant amount of money while paying off the mortgage.
Now you know
We hope this guide is useful for anyone who has a mortgage or plans to take one in the near future. Make sure you read through these points a few times and internalize everything, as it could save you some costs.