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. A mortgage is a payment alternative for people who cannot pay for the house in cash. 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. 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.
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. A fixed rate will charge the same interest rate throughout the repayment duration. Variable interest rate changes during the life of the loan resulting in a decrease or increase in the installment to be paid. It is therefore advisable to find out the form interest that you will be able to handle comfortably. If you want to avoid inconveniences related to fluctuation in the installments you should go for a fixed interest rate.
The length of the loan should also be considered. Majority of mortgagors does not usually pay close attention to this factor although it is important. The most common duration that mortgages take is either 30 years or 20 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 process repaying a mortgage loans involves a down payment and regular monthly installments. 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 rate required to be paid as down payment varies from one bank to another. Once you have chosen the house, you should choose the bank that requires an affordable down payment.
The closing costs is also another factor to put into consideration when selecting a mortgage. The closing costs are the costs that surround the mortgage such as prepaid insurance and tax and payments to the other parties involved in the process such as lawyers and home inspectors. The number and the rates of the costs vary from one bank to another. You should make sure that you will be able to afford the closing costs.