A mortgage is a form of loan in which a property usually a real estate is used as the collateral. Mortgage financing involves transfer of ownership of the house to the lender by the borrower until he/she is done with the repayments. A mortgage is a payment alternative for people who cannot pay for the house in cash. Therefore, they will be able to acquire the building through bank financing and later repay the bank in installments before he/she gains ownership of the building. The mortgage attracts interests just like a loan from which the bank will be able to make profits. Several factors should be considered while deciding to secure a mortgage. Therefore, in this article I will discuss some of the factors that a mortgagor should have in mind when agreeing with the mortgagee.
The mortgage loan interest rate is the most crucial factor to put into consideration. There are two major types of interest charge on the mortgage loans namely fixed and variable interest rates. A fixed rate involves calculating the interests using a constant rate during the life of the loan. Variable interest usually vary during the period of repayment depending on the prime rate. Therefore, you should research and establish the method that you will find convenient depending on your source of income. Fixed rate is preferred by most individual since they will be able to avoid the increase in the installment which can be inconveniencing.
The duration that the loans take is also an important factor to consider. In as much as the length of the loan determines the amount of money you will be required to payback most people choose to ignore it. Mortgages are available in different lifespan the most common being 30 years and 15 years. The amount you will pay back is partially determined by the length of the mortgages. If you want to pay less than you should take a short mortgage.
Financing a mortgage is more or less similar to higher purchase buying. The monthly installments are always preceded by a huge deposit known as the down payment. Therefore, you should choose a mortgage that needs a down payment that you will be able to pay. The higher the down payment that you make, the lower will be the cost of the mortgage. The down payment required usually vary from one bank to another and depends on the value of the property. Therefore, you should choose a home that you can afford the down payment required by the lender.
Another tip for mortgage financing is the closing costs. The closing costs include prepaid insurance and tax and cost of hiring a lawyer and home inspection experts. All lenders usually have closing costs but the rates are different. It is safe to make sure that you can afford the closing costs involved.