Your money and finance

Mortgages

Mortgages

Mortgages are probably the largest loans most of us will ever take out , and they allow us to acquire the largest asset most of us will own – your home. So it’s important to get it right.

And I’m sure you’ve heard the horror of people defaulting on their repayments and losing their homes – this is a horrible situation to be in, so if you are looking for a home loan, please do your research and head down the road to default.

Anyway, here are some tips that could help you secure mortgages:

• Know your Ability to Repay – do a budget and work out exactly how much money you have to put into a mortgage. Remember, you will be typically paying off a mortgage over a long period of time, so the repayments shouldn’t stretch you such that you have no buffer in your budget.



• The bank will also determine your ability to repay based on your income and expenses. Give this information to the bank openly and honestly. If a bank doesn’t think you can afford a particular loan, then don’t pursue it – get a cheaper house instead. You don’t want to be in mortgage stress for the rest of your life!



• If a bank thinks you can repay more than your budget allows – stick to your budget! You need to be comfortable making repayments into the future. Regardless of what the bank thinks your ability to repay is, YOU need to make your own judgement.



• Variable or Fixed Interest Rates - Interest rates go up and down with the local and global economy. And for longer term loans, this means that the interest rate will go up or down during the term of your loan - which means you will pay more or less interest on your loan accordingly. That’s great if it goes down, but when interest rates go up – you can really feel the pinch in loan repayments.
  
  Some mortgages allow you to fix in an interest rate (typically a bit higher than the current interest rate) so if interest rates go up, your interest repayments won’t. Conversely, if interest rates go down, you won’t see the benefit of the reductions in interest.
  
  Which one is best for you?



• Either way, understand what the loan is actually going to cost you – interest charges and lending fees. Compare loans to see which one is actually the cheapest for you – and read the fine print!



• Know how an increase in interest rate is going to affect you – unless you have a fixed interest rate, rerun the repayment calculations for interest rates say 1 and 2% (even 5% higher) and see what happens. Can you afford these repayments?