Buying a house is a massive financial decision. It will significantly affect the way you handle your finances in the future. As a result, you should know as much as you can about a mortgage.
Here’s the catch though – a lot of people don’t understand the terms of their mortgage. The language is filled with jargon and they aren’t aware of some concepts. Most people don’t consider too many different mortgage options because they are intimidated by the selection process. In addition, a lot of us mistakenly believe some things about our mortgages. Let us try to clear some of these misunderstandings.
1. Your EMI isn’t affected only by your principal and interest.
A lot of people choose their mortgage plans based on the principal and the interest amounts. However, there are additional costs you should consider – taxes and insurance, for example. When you’re choosing a plan, make sure you have looked at all of the variables properly.
2. Qualification and approval are two completely different things.
Sure, you might have qualified for the loan you’re looking for, but that doesn’t mean you’ve got it. Qualification is an initial assessment of your capabilities and how much of a loan you might be able to handle.
After you’ve qualified, comes the approval process. During this step, you will have your finances examined in detail, and then the bank or the lending agency will decide whether they should grant you the loan or mortgage.
3. You don’t NEED to pay a large amount as a down payment.
Sure, some mortgages might require you to pay a 10-20% of the entire amount as down payment. But if you can’t afford to do that, there are several other options available. Look for other mortgage plans which require you to submit less of an amount as a down payment. Talk to a professional to find which plan will work for you.
4. A mortgage is a mortgage is a mortgage. NOT.
Well, since you have to get a mortgage for your house anyway, why run around and waste your time looking at options? How different could two mortgage plans be, right?
There are several finer points in the mortgage agreement that you need to look at. Some plans might include hidden costs or fees that you aren’t aware of.
5. Renting isn’t always cheaper than owning.
Depending on where you live, you might find that owning a home is actually better for you financially. Tax deductions and acquisition of an asset are two of the more tangible benefits of owning a home.
But there’s also an unseen advantage to owning your own home – security, pride, safety, and a sense of accomplishment.
6. You shouldn’t rush to pay off your mortgage as early as possible.
Sure, in some market scenarios, this makes sense. You can be better off if you rid yourself of monthly payments earlier. But, there’s no telling which way the economic winds will blow. In most cases, it’s safer to save the extra money you would have spent on your mortgage clearance and invest it in some long-term financial assets.
So, if you’re looking for a mortgage, make sure you have all of your bases covered. Don’t succumb to misinformation. Read your agreements carefully, or get a professional to do it for you.