Mortgages may sound terrifying, especially with frequent news of default rates, home repossessions, and plummeting property prices. The financial crisis took its toll on homeowners, many of whom, are still recovering. Because of this fear, more and more people are choosing to rent instead of own homes but mortgages are still a good option so long as you chose the right one for you and don’t stretch yourself too far.
In the simplest of terms, a mortgage is a loan to finance a home. These days, it is almost impossible to purchase a home outright due to the huge sum of money required. This is why so many families opt for a mortgage in order to have their first home and pay it in monthly increments, normally over the course of 15 to 30 years. These monthly increments are composed of the principal and interest (called amortization), taxes and insurance – a combination known as PITI. This may overwhelm first-time buyers, but there are mortgage companies like AVRUS that can help ease the process and minimize stress.
To find the best mortgage provider, it helps to do some research. A good provider will be one that offers the best terms in interest rates, points, processing costs and adjustment features in adjustable mortgages.
Before choosing a creditor, it is a good idea to know all the conditions of the agreement. Are there hidden charges? If fixed rates are cheaper than discounted deals, it might mean that lenders expect rates to drop soon. Doing research will help debtors understand the fees, conditions, and help them find the best deal for them.
The most important thing when filing for a mortgage is to being aware of your cash flow. It’s important to be sure you can repay your mortgage and still have enough cash for day-to-day living. Therefore, it is advisable to make a monthly budget detailing all the expenses to be made. This would include groceries, bills, and other household expenses. This helps you to keep track of your spending to see where your money is going and more importantly, where money could be saved.
If possible, it is also a good idea to overpay your mortgage. Not only would this subtract the total loan and cut the length of the terms, it would be tax-efficient because the benefit is equivalent to the rate of loan payment. Lump sum payments are also a good idea, but the money cannot be accessed again, unlike overpaying, which leads to an amount which can be accessed later on, without remortgaging. Lump sum payments are advised only if the debtor is sure he will not need the money again.
Owning a home has many benefits. On top of the security of having a roof over one’s head, there are tax deductions, financial appreciation, equity, borrowing power, and freedom.
Ella Mason, an experienced freelance writer, wrote this article. Ella specialises in providing useful and engaging advice to small businesses. Follow her on Twitter @ellatmason