Not many people have the ability to purchase a home with cash at once. A majority rely on mortgages to fulfill their dreams of owning a home.
The first step towards that direction is identifying the type of home you want. This way you will be able to know how much the property costs. The next important step is choosing the best type of mortgage. Considering the fact that mortgages take long to repay, it is important to choose one that suits your budget.
What is a mortgage?
A mortgage is a loan given issued by banks and other lenders to individuals who would like to purchase homes. Different lenders charge different amounts of interest.
How to choose the best mortgage?
- 1. Understand your budget
Most homes are in six-figure in terms of price. The first thing you should do is figure out how much you can afford. As much as you would want to own a big house, it is good to be realistic. Take a calculator and determine how much you can repay every month. That will give you an idea of the type of house you can afford. It doesn’t make sense to apply for a mortgage loan that will cripple you financially.
- 2. Repayment duration
This is another important factor to help you choose the right mortgage. Some lenders offer a repayment period of up to 30 years. However, there are mortgage loans that have shorter repayment periods ranging from 10 to 15 years. The longer the repayment period, the higher amount of interest you will pay. It, therefore, depends on your financial muscles. If you can repay huge amounts for a shorter period, then you will pay less interest compared to someone having a longer repayment period.
- 3. Understand the different types of mortgages
There are six main types of mortgages. Each one of them has different terms and conditions. For instance, some lenders require a down payment of at least 20% while some might only request 3%. You should therefore find out the terms of various lenders and make an informed decision.
- 4. Set saving goals for a down payment
Most lenders won’t give you their money if you are unable to provide a certain percentage as a down payment. As such, it would be wise to start saving early – to be able to pay for the down payment. The higher the down payment, the higher your chances of getting a loan.