Borrowing is an important tool in personal financial planning. Some common and necessary uses of credit are house loans, mortgages, remortgage, and car loans. Other forms of credit in which the financial services industry can offer to individuals are secured loans and unsecured loans.
One of the most common long-term credit is a mortgage loan, which is secured by the property. This means that in the event of the borrower defaulting, the lender obtains the legal rights to liquidate the property to recover money. In my opinion, Mortgages and home loans are not that easy to apply, if you are not working, and if you do not have a stable income. They would be easier to apply if you are working and have a stable pay. In addition, the bank will look at your age. I do not change my mortgage providers for my home loans. But I know of many clients of mine who used to change from banks to banks so as to save on lower interest rates payments. By doing so, they actually can save a lot of money, such as a few hundreds per year!
Mortgage loans can be classified as either fixed-rate or adjustable-rate. For a fixed-rate mortgages, which still accounts for a large portion of home loans, both the interest rate and monthly payments are fixed over the full term of the loan. The process of paying off a mortgage by making periodic payments is called amortisation. An amortisation schedule will show how much must be paid, over what period of time and how much progress is there towards principle repayment. When looking at an amortisation schedule, one would notice that most of the intial payments go to paying interest. A larger portion of the monthly payments will go towards repaying the principle when the mortgage term progresses.
For adjustable-rate mortgages, that interest rate and the size of monthly payment is adjusted according to movement in interest rates. The interest rate is usually linked to an index and adjusted in accordance with any changes to the index.
It is almost impossible for anyone to pay for a house using just savings alone. With property prices appreciating at such a fast rate, many need help of banks or other financial institutions to realise their dreams of owning a home.
Home loans ususally have maturities of up to 30 years, provided that you are below a stipulated age when you take out the loan. Age is just one of the factors that banks look at before deciding to offer you the loan. There are others that include the borrower’s monthly salary and thus his ability to meet monthly repayments. Usually the bank will arrange for the monthly repayment to be a maximum of 40% of the borrower’s monthly gross salary.
