Mortgage financing involves purchasing a home through a bank loan and the house is used as the collateral. The borrower enters into an agreement which conveys the ownership of the property to the lender until the payment is completed. Mortgages are commonly used by individuals who lack the financial capacity to purchase a property all at ones. The borrower will get to enjoy the services of the property even though he/she has not cleared the payment. The lender will be able to benefit from the interest that the mortgage will attract. The process of securing a mortgage is governed by several important factors that the borrower should consider. Therefore, in this article I will discuss some of the factors that a mortgagor should have in mind when agreeing with the mortgagee.
Firstly, you should consider the interest rate charged by the lender. There are two major types of interest charge on the mortgage loans namely fixed and variable interest rates. Fixed rates are constant throughout the period over which the repayments should be made. Variable rate changes during the repayment periods. Therefore, you should research and establish the method that you will find convenient depending on your source of income. Majority of people prefer fixed interest rates as it gives them peace of mind since they will not have to worry about an increase in the installments.
The duration that the loans take is also an important factor to consider. The duration is always neglected by the borrowers although it is beneficial. The most common duration that mortgages take is either 30 years or 20 years. The length of the loan plays a role in determining the amount of money that you will pay as interest. 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 mortgagee will require a down payment followed by the regular monthly installment. The down payment should be within your financial capacity. The higher the down payment that you make, the lower will be the cost of the mortgage. The value of the property is usually used by the banks to calculate down payment. The lower the value of the property, the lower down payment.
The closing costs is also another factor to put into consideration when selecting a mortgage. 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.