15.04.2016

Beginners Guide to Mortgages

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Taking out a mortgage is a huge financial step in your life. Not only are you accepting a large amount of money from a bank to purchase your home, but you are dedicating a percentage of your future income to paying back the mortgage. Before you take out a mortgage, there are a lot of things that you need to research, and a lot of things that you need to know.

A Mortgage, what is it?

A mortgage is a loan, very commonly taken from a bank, which is specialised for purchasing a home. It is a long term loan which can take several decades to pay back. Taking out a mortgage is most likely the biggest financial investment that you will ever make in your lifetime and should be thought out carefully. Remember that a mortgage is like any other type of loan and is a legally binding contract, meaning if you don't abide to all of the agreements set out in the contract, the bank is able to repossess your home and take it from you.

Where You Get a Mortgage From

Although the most common place to take out a mortgage is from a bank, you are also able to take a mortgage out from a building society under similar contract agreements. Keep in mind though, that these companies view mortgages similar to an investment. They are giving you money in order to receive more money in the future. With that in mind, they will offer you a range of loan packages. While looking at their packages, I can't urge enough that you remember a loan is a huge financial dedication. It will take you a long time to pay back the loan, so if you are unsure about which package to take or you are even unsure about taking out the mortgage as a whole, then hire a financial advisor and discuss what is best for you. If you do decide to hire a financial advisor, then listen to what they say and take their advice. They are professionals, they do this for a living so they know what they're doing.

How to Apply for a Mortgage

Step 1. Apply to the mortgage broker. While you re applying they will ask you some basic questions along with any other financial enquiries that they feel necessary. These questions may consist of, "What kind of loan are you looking for?", as well as asking you questions about your credit ratings and any other personal financing questions they have. If the application is successful then they will discuss their packages with you and try to 'sell' the most beneficial package to both you and the company.

Step 2. This step follows on and continues your application. The mortgage broker will carry out a full financial investigation about you in order to find out your previous financial situations, credit ratings, and will also ask you about your future financial plans. You can think of this as an interview, where the broker lending money to you wants to find out everything that they feel is necessary to give you a loan. If you pass the whole application process, the mortgage broker will provide you with a mortgage offer, and if you accept the offer you will be asked you sign a binding contract which will keep both you and the broker safe if there are any legal issues. This contract states that you must keep up your payments, otherwise they are able to take your home from you. That is one of the biggest points you must keep up with as part of your agreement.

Different Types of Mortgage

There are a few different types of mortgage, and it's important that you know the advantages of both before you take out the loan.

A fixed rate mortgage means that you will pay the same amount of money until the mortgage has been paid off, which is typically between two and five years. A benefit to this is that you are able to budget your money effectively and will know exactly how much you are going to be paying each month.

A variable rate mortgage means that your interest rate will change, meaning that you will be paying a different amount each month. While this may seem as a negative, a huge positive is that you are able to pay more than what they ask of each month. If you come into some money during the lifetime of the loan, you will be able to pay more meaning you could end your loan early.

Deposits

While the mortgage broker will give you a deposit amount that you have to pay, you are still able to pay more than that. Paying a larger deposit will have long term effects which could save you a lot of money. Paying an extra few thousand on your deposit could save you over ten thousand when paying back the mortgage.

Calculate Your Mortgage Costs

Right after you take out a mortgage and have bought your home, you will have to start paying back what you have borrowed. The amount you pay back to the bank each month will most likely vary slightly, which is why it's important that you plan your finances ahead of time and know how much you'll be paying, and when you will stop paying back the mortgage. In order to find out how much you will be paying each month, how long it will take you to pay back all of the mortgage, and the date that you will have fully paid off your mortgage, it's a good idea to take a look at a Mortgage Calculator and input all of the necessary information so that you find out all of these things.

A loan is most likely the biggest financial decision that you'll make in your lifetime, so take the time to think it over and make sure it's the right decision.

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