As a result of the credit crunch, thousands of people are selling their homes at ridiculously low prices and, according to many economists, prices will drift down even further next year.
In other words, this is the right time to invest in the real estate market and if you can’t afford to buy a home, then maybe you should consider borrowing the money you need from a bank.
In the first place, mortgages are just like any other type of loan: someone (usually a bank or another authorised financial institution) lends you a certain amount of money, which you have to pay back with interest at a later time.
However, the problem with mortgages is that if you don’t repay the amount you have borrowed, the law allows the lender to take possession of your home and re-sell it at a lower price, which is one of the reasons why property prices have been surprisingly low over the past 3 years.
Therefore, it is crucial that you should spend some time listing all the advantages and disadvantages of asking for a mortgage loan so that whatever decision you make, you won’t risk losing your home.
The decision-making process should consist of three fundamental steps:
- Analyse your present financial situation and circumstances
- Write down your monthly income and deduct your expenses to make sure that you are in the position to ask for a mortgage. If the resulting figure is reassuring, then ask yourself how much you can afford to borrow.
- Spend at least a few days researching different mortgage options so that when you go to the bank, you understand what you are being offered.
Consider that adjustable or variable-rate mortgages are very much loved by the majority of financial advisors, clerks and bankers as they usually get higher commissions if they convince you to sign for a variable-rate mortgage instead of a fixed-rate one.
But why is that? The answer to this question is quite simple, not to say obvious if we consider that banks’ top priority is to make money: variable-rate mortgage are subject to interest fluctuations, which means that you won’t pay the bank the same amount of money every month, as your mortgage interest rate will change over time and so will your monthly payments, which will be “adjusted” to the aforementioned changes.
So, if a broker or anyone else offers you to sign for an adjustable-rate mortgage, make sure that you ask what the “cap” for that particular product is, or you could end up paying a lot more than you expect.
Another factor that you should consider when deciding whether to buy a home with a mortgage is that brokers, banks, lenders and building societies all sell pretty much the same types of mortgages, but charge different fees, so ask around before making a final decision.
Last but not least, mortgage applications can not be approved unless you buy an insurance policy as well. Some types of cover are “compulsory” and are considered as part of the transaction, while some others are optional, so feel free to compare different mortgage options.