Mortgaging Basics For Newbie

by Ewan Hicks
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On the top of the basic necessities for a human come food, clothing and shelter. Right from the days when Iron Age and Stone Age men were hunting for food and probably not covering themselves much apart from skin of dead animals, they had a home. Not exactly a modern day home or even a hut but they did live in caves that gave them shelter from the vagaries of weather. With the advancements in civilizations man began to build better homes, castles and palaces.

Why owning a home is better

Palaces and castles were for the elite class and the luckier ones and common man still needed a home. In modern days one can either own a home or rent it. Living in a rental home is always accompanied by its own problems like fluctuating rents and the possibility of owner asking one to vacate it anytime they like and one has to again go rental house hunting. One has to either go with what the agent or broker says or bends to the rule set forth by the landlord. Thus one has to swallow a lot of ego in living in a rental home and has to adjust to whatever is on offer. There is certainly an amount of suppression of freedom one can feel while living in a rental home.

The financial factor certainly plays a role while deciding to go for rental home or own home. If one is going to live in a city for only a short duration then it is better to go for a rental accommodation. However if one has set his base and is going to live for a longer duration at a city then it is better to think about buying a home. Instead of paying the rent one can use it to pay back to the lender after buying a home in mortgage.

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What is mortgaging

Buying a home is not an easy affair, it involves a lot of money and the kind of money is not readily or easily available for common man. Does it mean the end of the road for such people? No, this is where banks and financial institutions come in to picture. These lenders shall pay the money on your behalf with an agreement that you would repay the amount in instalments over a period of few years. Typically the duration may vary from 15 to 25 years.

Eligibility

Not everyone is eligible for any amount of money, the amount of money you can get a loan depends on a few factors like your credit score and your current income. Basically lenders would check for your repayment capacity and decide if they have a good feeling and backing that you will repay the loan within the period.

How do lenders benefit

The money is not given to you for free. It is given at an interest that you have to pay. The rate of interest shall be decided by the lender. Thus at the end of the mortgaging period you would have paid to the lender the amount that the lender gave as cost of the house, called as principle amount and also the interest on the principle amount over the years. Here as well there are two kinds of mortgaging, either you pay only interest every month and repay principle as and when you have money. Other way is that every month the amount is split into two parts one for principle and other for interest

 Flat lay of real estate concept

Is it beneficial?

The next question that would come to mind is that, if you were to pay an interest for so many years as well as principle is that not a huge amount. As a matter of fact you may have repaid almost double the original cost of the house. However if you were to buy the same home after 20 years it would cost you almost three or four times. Another benefit is that a part of money that was being paid as rent is given in the repayment and hence one has to shell out only an additional smaller amount. Financial advisors say that buying a home on mortgage is a very good investment over a long term as the value of house increases over time and one can also get tax benefits while in debt.

Thus overall buying a home on mortgage is a great investment option and is one of the best investments for the future.

 

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