Most probably, the most significant investment you are going to make is of buying a home, for which most likely you will be arranging a mortgage. Before getting a mortgage, you should ensure that you can afford to pay it. To give a glimpse, a mortgage is a loan to buy a property or land. This loan is secured against the same entity for which you got this loan.
Until the loan is paid, the property is not entirely in your possession. So if the buyer is unable to complete the loan payment, their property can be confiscated by the bank or company they took the loan from. It is never advisable to stretch oneself just to complete a loan payment or complete it faster, and at the same time, the buyer has to cover the running the home presently while on loan.
Before a person is given the mortgage loan, they will be investigated in terms of whether they have the capacity to pay it back. Their credit history, proof of income, expenditure, debts will be monitored. If found up to the mark, only then the loan is passed.
When you are thinking about choosing a mortgage, do not just focus on the rate of interest and the fees you will be charged, but also think about the type of mortgage you are going for. Consider the merits and demerits of the type of mortgage you are going to opt for.
Some of the mortgage services are explained below.
The rate of interest you will be paying for about two to five years or through the entire length of the deal remains a constant value.
Here you are generally at peace of mind that you would not be affected no matter what happens to higher authorities’ economy or base interest rate. Though these kinds of deals are higher than variable-rate ones, also, if the base interest rate falls, you will not be benefited.
Variable Rate Mortgage
In this type of mortgage, the interest rate can change at any time. Hence, it is advisable to keep some savings aside if the interest rates rise.
This type is further classified as:
- Standard Variable Rate Mortgage
- Discount Mortgage
- Tracker Mortgage
- Offset Mortgage
- Capped Mortgage
One should possess the information on applying for the mortgage. This is generally a two-step process. The first step is more of a necessary fact-finding to determine how much you can afford and which mortgage type is right for you. Here, the lender tries to figure your need, how long you want to keep paying, how much you know, and might give you some ideas.
The second step is where the mortgage lender and checks whether the person can afford it. This is where their credit history, income proof is required to be given by you. This might as well involve going into details about your finances and plans. Even if the lender confiscated your property, if you cannot pay the loan, the lender himself also has to face some loss, so they only lend the money if they think you are the right fit for it.