The idea of buying a house comes along with a huge price tag. It is quite obvious that more than 90% of the population will not have liquid cash to buy a house. So they go out looking for other sources of finance. The mortgage is one such source of finance that most people prefer. Though mortgaging is quite sought after, there are certain things that you must know before picking it as an option to buy a house. Let’s see in detail what a mortgage loan is and the things that you didn’t know about mortgage loans before.
What is a Mortgage loan?
The mortgage is a lending system that allows you to pay a fraction of a home’s cost upfront. The remaining portion is paid by the banker or the private lending institution as the case may be. The first portion paid by the borrower is called the down payment. The financial institution is going to get back the money along with interest over a period of time. The repayment period can be as long as thirty years. The repayment period that is set is known as the ‘term.’ The financial institution needs to hold something as lien to make sure that you pay the money back. The property that is held back as the lien is called the collateral. In housing loans, the house itself becomes the collateral. If the borrower doesn’t pay back the money, the lender can take possession of the house that is given as collateral.
Things that you should know before mortgaging:
A bi-weekly schedule works better:
There is usually a misconception about the bi-weekly schedule. Most people do not prefer bi-weekly schedule assuming that their burden to pay back recurs sooner than usual. But the truth is actually different. You can save a lot of money if you are paying on a bi-weekly schedule. So if your banker suggests a bi-weekly schedule, you might have to consider it.
Go for a short term loan:
If you rightly understand why a bi-weekly schedule works, then you can probably skip this paragraph. As it is rightly stated earlier, in any payback concept when the term is short you can save a lot of money. In most mortgages, the period is either 15 years or 30 years. The principal amount along with interest payable is less in 15 years when compared to 30 years. So it is a wise idea to pick 15 years when you are given with that choice.
Get a broker if required:
Brokers need not have to be shunned away all the time. The role of a broker can sometimes prove to be really helpful. They will help you find the right mortgage scheme and the right financial institution. However, the advantages of employing a middleman are subjective in nature. So analyze and get to a conclusion.