So you are ready to stop renting and buy a home. What is the full price of the residence; the price the seller is asking or willing to accept, the real estate agent’s commission, the cost of the mortgage, the legal fees and, of course, the down-payment. Have you saved enough to cover the down-payment, other borrowing expenses, insurance and home furnishings or do you have to borrow from family, friends or commercial lenders? Any mortgage provider, broker or agent is willing and anxious to help you.What the lender expects; is evidence of regular and reliable source(s) of income hopefully deposited in a bank account held in their institution for over six month to a year, income that allows the borrower to qualify to pay an amount as mortgage payment of not more than 30-40% of net joint salary, credit rating established from managing credit cards and repaying consumer type loans. In many jurisdictions it is prohibited for the lender to issue 100% mortgages but for qualified borrowers, lenders can separate the borrowings.
What type of mortgage is best for you? There are hundreds of different types of mortgages with new ones constantly added, all with variations on duration, interest rates and repayment schedules. For example: Discounted Variable Rates; this is an interest rate repayment variation, to tempt new customers most lenders will offer a new borrower a discount on their standard variable rate, for a set period, your payments will go up and down, as with a standard variable mortgage, but you will pay less, after the agreed set period the interest rate will switch into the mortgage lender's usual variable rate. You must understand the mortgage being offered, its terms and conditions, whether it is a fixed or variable interest rate, for what duration, and how fees are charged and paid, whether late or lump-sum payments attract additional fees and is interest charged on those fees. The most common is a fixed payment (not to be confused with a fixed to prime interest) mortgage that sets a fixed amount monthly payment schedule for the borrower and divides this amount to pay interest first with the balance, if any, to reduce the principal.
You should know that your personal banker may only be able to provide bridging financing, monies to pay off the property seller and other related cost, while the mortgage is being processed at a commercial lending rate and that any down-payment is at risk if the mortgage does not materialize. This first lender has to perform the necessary due diligence to qualify the borrower and to verify the legal status of the residence, so that it is fit to hold as security against the mortgage. It is also common to purchase term life insurance on the borrower with a face value more than or equal to the full value of the mortgage. The entity that holds your mortgage for the long-term is a building society, insurance company or Government backed institutions that manages pensions and long-term investments.
Keep up your mortgage payments. Keep or grow your income level. Save and invest to off-set the mortgage debt.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
