A mortgage is a great financial responsibility and it’s important that one gets to understand what he is getting into before starting the whole mortgage process. In definition, a mortgage is a loan that is taken to help finance the purchase of a property or land. Most mortgages run over a period of 25 years but one can also bargain for shorter or longer repayment periods.
A mortgage is usually taken against the value of the home or land to be purchase until the whole amount is finally paid off. If at any time the borrower cannot pay up for the mortgage the lender has the right to repossess the land or property and sell it to recover their money.
A mortgage – a loan to finance the purchase of your home – is likely the largest debt you’ll ever take on. A mortgage is actually made up of several parts – the collateral you used to secure the loan, your principal and interest payments, taxes and insurance. Since most mortgages last 15 to 30 years of monthly payments, it helps to understand the working parts.
When you agree to a mortgage, you’re signing a legal contract promising to repay the loan plus interest and other costs. Your home is collateral for that loan. If you don’t repay the debt, the lender has the right to take back the property and sell it to cover the debt, a process known as foreclosure. In a foreclosure, you will lose your home and you will likely damage your credit rating, affecting your ability to buy a new home in the future.
Whether it’s your first home or you are taking a second one it is important to understand the facts regarding mortgages to avoid landing into problems when already too deep into the repayment of the mortgage. It cannot be stressed enough how crucial it is to understand how mortgages work.
When it comes to understanding mortgages, after you have decided how much you can afford, the next most important thing is the rate of interest – and it is in your interest to do your research. The tracker ship which pegged rates to ECB rates has long since sailed, so getting really low-cost loans is much harder than it used to be. On the plus side house prices are also a whole lot lower than they used to be so it really is swings and roundabouts. Very high-stakes swings and roundabouts.
The key to getting the best value is having a low loan to value ratio (LTV). The LTV is the amount that you borrow compared to the value of the property you buy and the lower it is the more anxious a bank will be to get your business.
Consider your fixed costs.
Before deciding on the mortgage plan to take it is important to calculate and take a stock of regular habits and the true fixed costs. It’s important for one to be honest with himself when putting together the household budget. Fixed costs are the things you can’t do without so it’s important to understand how much you can do without after you start paying your premiums thus avoiding constrains months after starting on the payments.
Have interest rates fallen? Or do you expect them to go up? Has your credit score improved enough so that you might be eligible for a lower-rate mortgage? Would you like to switch into a different type of mortgage?
The answers to these questions will influence your decision to refinance your mortgage. But before deciding, you need to understand all that refinancing involves. Your home may be your most valuable financial asset, so you want to be careful when choosing a lender or broker and specific mortgage terms. Remember that, along with the potential benefits to refinancing, there are also costs.
When you refinance, you pay off your existing mortgage and create a new one. You may even decide to combine both a primary mortgage and a second mortgage into a new loan. Refinancing may remind you of what you went through in obtaining your original mortgage, since you may encounter many of the same procedures–and the same types of costs–the second time around.