Most people who buy a house or apartment go to a bank to choose a mortgage. But which mortgage is best for you? Here is a brief explanation so you can go to the bank well-prepared.
A mortgage is a loan made by a bank against real estate, with the building as collateral. This means that if you cannot repay the loan, the bank can foreclose on the building. There are many different types of mortgages. We list them and provide further information.
Types of Mortgages
There are two types of mortgages: fixed-rate and variable-rate.
1) Fixed-Rate Mortgages
In a fixed-rate mortgage, the monthly repayment amount remains the same throughout the loan term. With this type of mortgage, there are no contingencies, but you also cannot take advantage of the possibility of interest rate decreases due to market fluctuations. In addition, the percentage of your outlay to take out a mortgage will always be higher with a fixed rate than with a variable rate.
When Is It Attractive?
Are interest rates low, and do you suspect they will rise again soon? Then it might be interesting to choose a fixed-rate mortgage.
2) Variable-Rate Mortgages
With a variable-rate mortgage, your monthly payment depends on the prevailing interest rate. If the interest rate falls, you will pay less; if the interest rate rises, your monthly payment will increase, or you may need a more extended period to repay the mortgage. Variable-rate mortgages are always cheaper initially than fixed-rate mortgages.
When Is It Attractive?
Variable interest rates are attractive when interest rates are high and may fall. Those who choose this type of mortgage assume a certain amount of risk. Remember, variable-rate mortgages have relatively limited risk because interest rates are guaranteed not to rise too much, and you can know this in advance.
Good To Know:
You can approach many banks for a mortgage. Visit several offices, request information, and compare different terms and conditions. There are significant differences in formulas.
Keep these points in mind:
- Monthly repayments cannot exceed 33% of gross household income. Consider all the fixed costs you will have to pay each month so you will not face unpleasant surprises later.
- Also, try to purchase your new house or apartment partially with your own money. After all, the bank calculates a fee for each mortgage. This is the ratio of the loan amount to the value of the home. The lower this ratio, the lower the bank’s risk and the better the loan terms. Today, a ratio of 80% is the norm.
- When determining the loan amount, all additional costs associated with the purchase of the home should also be considered.
What Are the Requirements for a Mortgage Loan?
When you contact a financial institution (such as a bank), the lender will examine your financial situation and ability to repay the mortgage. Three main factors are considered:
- Your income
- Your personal situation, to know your expenses
- Your debts
An investigation of your creditworthiness is required by law. Thus, banks and brokers limit the risk they assume by lending you money. You are also taking an interest. You avoid unreasonable repayments.
The law also obliges the lender to inform the consumer that he cannot grant credit if he does not provide the information necessary to assess his repayment options.
If you have any questions or ambiguities regarding your mortgage, do not hesitate to ask a civil law notary. He is the right person to provide you with all the information.
Have you ever taken a home loan? Share your experience with us in the comments below!