If you are looking to invest into your dream home, it’s probably one of the biggest investments you will make in your life. Unless you are a Bill Gates, Gary Vaynerchuk, or another millionaire millennial – it’s pretty darn important to find out everything you need to know before getting the ball rolling.
The problem is real estate is not getting any cheaper.
Although, this is great for property guru’s with multiple assets. It can make life more then a little challenging for those looking to invest into a house that they can call home.
Never fear! Through this article we are going to introduce you to mortgage loans. Explain exactly what they are, and how they can help you finance your white-picket fence home.
Ready to invest into your future?
First Step – Just What Is A Mortgage Loan?
Okay, I know – you caught me. This is pretty basic. But I just want to make sure I cover all basis, so that you know exactly what you are getting yourself into.
To sum it up, a mortgage loan is when you take out a loan in order to pay off a property or land. The benefits being a simple way to finance your home. As the value of the loan is secured in relation to the value of your home.
The period of these loans can be anywhere from 25-years and up, depending on your lender. As each lender has a different strategy in place when handling mortgage loans.
Another important thing to remember is that the value of your home is placed as collateral. Meaning if you are unable to keep up with your repayments on the loan – it is highly likely that you will be facing a repossession.
But we have some tips to help you ensure it never comes to that.
Can You Afford The Loan You Are Trying To Get?
When it comes to mortgage loans, it’s no childrens play.
In fact, on average Americans that are in debt thanks to mortgage loans, are facing an average of $182,421 in debt.
And a large reason behind this high sum is because they just didn’t have the know how to predict what they could, and could not afford.
Remember, you don’t just have to worry about your loan repayments. There are tons of unforeseen expenses that you need to concern yourself over when you invest in your home. From your run of the mill household bills, right down to council tax, and insurance.
Of course, we can’t forget about the plenty of maintenance that you will need to do!
Here is a nifty article that explains exactly how to work out what you can afford when it comes to taking out a mortgage loan.
The First Component Of Your Mortgage Loan – The Deposit
Believe it or not, the deposit you place on a mortgage loan could potentially save you thousands, if not hundreds of thousands of dollars in the long-run.
Depending on how well-versed you are in the arts of mortgage loans, you may have come across a term known as Loan To Value (LTV).
Perhaps you passed it off as some technical jargon.
Well, in Layman’s terms, lets say you are investing in a home worth $100,000. You could deposit 10-percent of the total loan ($10,000). Which means your LTV would be $90,000. This is what you will be charged interest on.
Naturally, the higher your deposit, the lower your LTV. Which could also influence your interest rate, as the smaller the loan – the less risk from the lenders perspective.
There Are Two Types Of Mortgage Loans You Can Apply For (Depending On Your lender)
Not many soon to be homeowners realize that there are actually two different home mortgage loans that can be taken out. The first known as repayment mortgage, and the second interest-only mortgage.
In order to help homeowners not only slice off a bit of interest every month, but also a small portion of the capital owed (The LTV amount), each month your payments will contribute to both the interest charged, and the actual amount you owe.
This is a far safer option, as the smaller the loan, the less the repayment costs.
These mortgages are becoming harder to find. Mainly due to the high-risk lenders face as more and more consumers face a hurdle of interest that they just can’t overcome. Resulting in bankruptcy, and a bad pay day for lenders.
Essentially, instead of your monthly payments being split between the interest, and the loan itself. This way of repayment involves your entire monthly payment going to the interest.
The entire idea being a race between how quickly your interest can climb, and how much you can pay off.
Choose Between Variable And Fixed Interest Rates
Great, so now you understand exactly what a mortgage loan is. And you know that you need to choose exactly how you plan on repaying your loan. The next step is choosing between a variable or a fixed-interest rate loan.
Fixed-Interest Rate Loan
Fixed-interest rates are ideal. Basically, your repayment cost will be the exact same each month for an extended period of time. Usually anywhere up to five years. Regardless of what the market rates are doing.
Of course, if the market interest drops, this could really suck. But typically, the market is somewhat stable, and this keeps you protected.
Variable Interest Rate
Variable interest rates are basically the opposite – as the name says. Your interest rate can increase or decrease depending on the stock market interest rate. Which can be both a good or bad thing, depending on how the market is shifting.