Things to Consider When Taking Out a Mortgage

If you a first-time home buyer or are looking to buy the house of your dreams, then there are some factors that should be taken into consideration before looking for a home and then applying for a mortgage to pay for it.

Anyone buying a home should actually figure out how much home they can buy before starting their search. The equivalent of 20 to 25 per cent of the value of a home should be saved as a down payment with as much as 40 per cent so as to secure a mortgage with a lower rate. Additional cash for insurance, closing fees, property taxes, a home inspection and incidentals should also be set aside when buying a home.

Once you have established your financial status, you can then determine your strategy for purchasing a home. The primary issue is how long you plan to live in the home, i.e. whether you will be there for many years and raise a family or whether it is a starter home or a fixer-upper that you will renovate and then move on to another property. This piece of information will determine the type of mortgage that you should seek.

A mortgage with a variable rate has a rate that is attached to the base lending rates of central banks or stock and bond indexes and usually remains above it by an amount set by the lender. These rates are the most competitive but have a higher risk. You might start with a low rate but it climbs your monthly payments would increase as well. This type of mortgage is better for those who plan on living in their home for only a few years and then selling it.

A mortgage with a fixed rate has the same rate for the entire length of the mortgage. This means that the monthly mortgage payments are the same throughout the length of loan and so facilitate budgeting. However, there is no benefit to be gained if interest rates decline but is a preferred mortgage for those who plan on living in their home for decades.

Mortgages can also be interest-only or repayment mortgages. Most new residential mortgages are the latter. This means that the monthly payments include paying for the interest on the mortgage and some of the capital every month. The amount of interest paid decreases towards the end of the mortgage and once the mortgage is paid off, the property is owned outright.

There is also an interest-only mortgage where the capital is repaid independently. This can reduce the monthly payment but is usually not an option for first-time buyers as there is a great deal of financial risk and the lending criteria are very strict.

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There may also be an early repayment charge if the mortgage is paid in full before the full term of the mortgage elapses. The best way find out what type of mortgage is best for tour situation or for more information about homepath homes and financing, then you should contact your mortgage or lending company and meet with them for further details.