A majority of the homebuyers often finance their purchases through mortgages. Basically, a mortgage is a credit facility that offers you money to buy a home or similar property such as land. Mortgages are usually expected to be repaid in monthly installments over a period of between 10-30 years.
So many homeowners have benefited from mortgages. However, there are people whose lives have been ruined by mortgages and foreclosures. Mortgages differ from creditor to creditor, and you, therefore, need to conduct research and learn more about this facility before signing up for yours.
Where to get a Mortgage
Mortgages can be obtained from credit institutions such as banks and credit unions. Some credit unions have lower interest rates in comparison to banks. However, most banks have the advantage of being credible and longstanding lenders, so they offer more stable mortgage facilities.
Apart from these, you can also obtain mortgages from mortgage brokers and independent financial advisers. The advantage of using such sources is that the mortgage brokers can compare different rates and offer you the best mortgage in the market. Nonetheless, you can also make comparisons yourself to just ascertain the rates that your mortgage broker is offering. This can be possible through the mortgage comparison websites.
It is also possible to obtain a mortgage by yourself through the execution-only mortgage. This is where you seek a lender without getting any professional advice. When you choose an execution-only mortgage, the lender will require you to sign a consent form. This is to ensure that you are well aware of the terms of the mortgage, and you are ready to commit to them without any professional advice.
How Mortgages Work
The first step in obtaining a mortgage is the application stage. You will be required to divulge important personal details during this stage. Also, you will also have to reveal the amount of money that you are capable of paying as a down payment on your loan. You have to be clear regarding the details of your mortgage including how much you want from your lender and your source of income and installments of repayment.
Your lender will assess your credit score, financial situation, and personal details before coming up with the exact amount of loan that you qualify for. The lender will upon request issue a preapproval letter that shows sellers that you are capable of purchasing a house.
Repayment for Mortgages
Repayments for mortgages are different depending on the type of agreement you have with your lender. There are interest-only mortgages that usually require the borrower to pay off interest only every month and then pay the whole sum of the amount borrowed at the end. These loans are becoming less frequent because borrowers have difficulty amassing high amounts of money to pay off the initial capital.
Fixed rates and variable interest rate loans are more common, and borrowers are required to pay off the interest as well as a part of the capital every month. The only difference is that fixed rate mortgages require constant payments for at least two to five years because the interest rate on the loan is fixed hence remains unaffected by market changes. Variable interest loans fluctuate and change from time to time depending on the market rates. Ultimately, loan repayments may take up to 25 years to repay.
Taking out a mortgage is only viable if you have a stable source of income. You have to consider the amount you are willing to pay in monthly installments before taking your mortgage. Additionally, you also have to consider other payments that you have to make including land taxes and other repayments that homeowners have to make. Once you make solid plans for your mortgage you are indemnified against foreclosures and bankruptcies.