A home is generally the biggest purchase a person makes in their life. If you are considering buying a home in the near future, it's a good idea to learn more about mortgages and compare before you buy.
What Is a Mortgage?
Mortgages are loans that banks and authorised financial institutions give borrowers to buy a home. The home or the property itself secures the loan. In simple terms, if a borrower is unable to keep up with the monthly repayments, the lender has the right to sell the house to recover the loan amount. However, the transfer of the title becomes void after a borrower has paid the entire debt. In general, mortgages run for 25 years. However, this term can vary, depending on several different conditions.
How Do Mortgages Work?
Banks and other financial institutions earn money on mortgages by charging interest on the Capital, i.e. the money borrowed. Once the lender has repaid the entire Capital, the lender loses their right to sell off the property.
Based on whether the borrower wants to pay only interest or interest and a part of the Capital, mortgages are of two types: Interest-Only mortgages and Repayment mortgages. In the case of Interest-Only mortgages, the borrowers are required to pay only the interest on the loan. These types of mortgages have become rare these days. Borrowers with repayment mortgages, on the other hand, pay interest as well as a part of the Capital every month.
How Much Can You Afford?
As a general rule of thumb, your mortgage amount shouldn't be more than two to two and a half times your gross income. However, the exact amount of mortgage a person can afford depends on several different factors.
How Do You Get a Mortgage?
Once you make an application for a mortgage with a bank or financial institution, the lender will consider your application against various factors, such as your yearly salary, additional income, etc. The lender will do a credit check to assess your financial history and better understand if approving your income and outgoings. Once the lender has done their due diligence and is sure that you can afford the mortgage you have applied for, they will approve it.