The older you get, the more conscious you become of your money because you know that your working days are limited and that you need to have saved enough money for retirement.
Certain loans and investments can ensure that you will not have to dip into your savings while you’re still a part of the working force. One of the best investments is properties.
What is a mortgage?
A mortgage is a legal agreement between an individual and bank. The bank will lend the buyer the money needed, in exchange for placing a bond over the property. When the owner has paid back the bank, the bond registered over the property will be lifted.
The house acts as security for the loan so that if the lender cannot pay back the loan, the bank will take the house as payment. The bank advises to take out a loan of 80% of the value of the house. This way the bank will get their money back if you default on your payments.
The benefits of a mortgage
A mortgage can prove quite useful when you need to take out a loan against your house. It is recommended to only take out a mortgage when you are ready to settle down and have job and income security.
- Taking out a mortgage makes owning a home affordable
- It can provide a cost-effective way of borrowing money to invest in property
- There will be leverage as the price of the property in a really good area typically increases and therefore, you will be making a profit--provided you’re in it for the long run
- You will have security from knowing you have a large investment for retirement
- There is such thing as a mortgage interest deduction depending on which tax bracket you fall under
- Bonds can work out to be more affordable than rent on a monthly basis
- With a mortgage, your lending capacity has increased as you will be able to put up security for personal and business loans
- Getting a mortgage approved will only better your credit score
The disadvantages of a mortgage
With every good thing, there is always a downside so, it’s important to consider both aspects before making a final decision. Do not rush this decision.
Here are some downsides to note:
- Essentially, this is a loan which means you will pay interest monthly so you will end up repaying much more than you originally borrowed.
- There may be charges and costs you’re not aware of so read the small print when signing a contract.
- Certain mortgages have variable rates, meaning that your low-interest rate could increase drastically.
- The value of your mortgage will be affected by property value loss which is out of your control.
- There is always the risk of losing your home if you default.
- Asset depreciation is a possibility.
How a mortgage can help you
Many benefits of mortgages are well known so there’s no reason to go into more detail here but, we’ll review some major points. It helps by allowing you to buy property and not have to save for years to do it. Instead, you can just borrow the money from your mortgage provider.
There are many options out there so it’s important to do research. You need to know what you can afford as well as what your long-term goals are as this will make finding the perfect option much easier.
Different types of mortgages:
- Fixed-rate mortgages- these loans allow fixed-term payments of 2, 3, or 5 years. The rate will stay the same no matter happens to the prime rate but after this period, it will become a variable rate.
- Tracker rate mortgage- these are made for those individuals who want to make unlimited overpayments and, also for the people who think interest rates will stay low.
- Lifetime tracker mortgage- these are for people who still want to make those unlimited overpayments but also want to remain with the same plan forever.
Banks that offer mortgages in Australia
- Homeloan Experts
- Map Home Loans
- Oak Laurel
- Yard Bank
- CUA Bank
- Reduce Bank
- ING Bank
- New Castle Permanent Bank
- Westpac Bank
- Homestar Bank
- West Bank
How to apply for a mortgage
Before applying, you need certain documentation and paperwork. You will need your identification document or passport, proof of address, proof of income and an Offer to Purchase or Deed of Sale that has been signed by the seller.
A mortgage broker or estate agent can help you prepare your documents and make the application on your behalf.
The process of applying for a mortgage
- Either go straight to the bank go through a broker to explore all of your options.
- Check that you qualify.
- Hand over all paperwork that was requested.
- Then look for a property within your budget and agree with the seller on a purchase price.
- Pay the deposit to secure the sale of the house.
- Make your application final to approve your purchase.
- Carry through the sale and gain ownership of the property to become liable for mortgage payments
These facts make taking out a mortgage such an easy and simple process. There are not many downfalls if you go with what your pocket will allow and, it will be one of the best decisions you have ever made.
There are plenty of benefits to persuade you but, the best one by far is that you can finance your house without having to dig too deep into your savings. Make the best decision of your life today and take out that mortgage that will secure your future and retirement.