Financing a New Home

Purchasing a new home can be very costly. Fortunately for us, we can turn to the bank for a mortgage loan to help us out. Mortgage loans allow us to pay for a home in installments.

After you apply for a mortgage, the mortgage lender will hold onto the ownership of the property till you as the buyer can pay the mortgage off. However, you can still occupy the property as if it were your own.

There are a number of mortgages on offer and you may want to choose the one which best suits your needs.

Fixed rate mortgages

With this package, your repayments are fixed and there will be no change as to the amount you are required to pay even if you are struggling financially. Often there is a penalty involved if you do not pay on time or if you end the mortgage early.

Variable rate mortgages

This type of package seems to be very popular with home owners. In this case, the lender sets what the interest rate is which allows for more flexibility in repayment. However, there may be a delay as the mortgage provider might change the rates from time to time.

Tracker mortgages

These mortgages are set at a fixed percentage but they change over time to match rate changes made by the bank. What this means is that your payments may increase if the mortgage rate rises. However, you will pay less if the rate decreases. If you think that the financial climate is not doing well and this would cause the mortgage rate to decrease, then this is a good package to gamble on.

Offset mortgages

This package is a good solution if your current or savings account is on credit. If you read through the terms and conditions of an offset mortgage, your balance will cancel out some of the borrowing and you’ll just need to pay interest on what’s left. This type of mortgage can be risky because if you spend any of your savings, then the amount of interest-free borrowing will decrease. However it is a good way of keeping payments down if you expect to be in credit over the full term.

Repayment mortgages

This type of mortgage will guarantee you ownership of your home in the long term, but there is just one catch- repayment mortgages cost more. Monthly repayments will go towards clearing your interest fee and paying back your initial borrowing. This package is good if you are facing financial problems or if you expect a wage increase in the future.

Interest only mortgages

In this package, your monthly payments cover the cost of the interest, but you do not have to pay off the capital value of your home. This is a good way of keeping repayment costs down. However, in the long term you will be required to pay off any a certain amount of money. Usually, this will be the amount you borrowed initially. If you cannot pay the remainder of what you owe, then you stand the risk of losing your house.

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