What is Involved with Choosing a Mortgage? 

home loan

There are many different ways to keep a roof over your head, but many of us prefer to have some form of contract to say that we have a place to live.  This could be a rental agreement or it could be a mortgage, but even these two categories are broad in their capacities.  Mortgages are sometimes seen as almost something of a luxury, something that only the wealthy can afford as there is so much money involved as opposed to the monthly commitment of renting; but this doesn’t have to be the case.


Mortgages for everyone?

houseWell, the answer to that question sadly has to be no.  Mortgages are still something that needs to be carefully chosen and investigated by both sides to ensure that everyone gets what they need.  Banks may initially seem quite restrictive in regards to mortgages, but there is good reasoning for this.  The banking crisis that struck large parts of the world around 2007 was mostly due to lenders being too reckless and offering mortgages without much security, any deposits and at rates that customers couldn’t maintain if the base interest rate raised even slightly.  This lead to thousands defaulting on their mortgage payments and banks not being able to cope with the lost cash flow, causing them to collapse.  So unfortunately mortgage providers do need to be selective, but this is not exclusivity, this is strong financial sense.

What are the options?

When looking at mortgages, you essentially have two common types, interest only and repayment.  The names offer a pretty big clue, but, for the sake of clarity, a repayment mortgage entails you paying off the loan amount and the interest each month whereas an interest only mortgage means you only need to pay the interest.  Obviously, interest only mortgages will have lower payments for the same loan amount, but you will not be paying off you debt, simply keeping it stable.  It is also possible for one type to become the other, so a mortgage may be interest only for the first five years and then become repayment.  If this all sounds complicated then make sure you speak to home loan specialists lik e Multi-Choice before you consider taking out a mortgage product.

How much can I expect to pay?

moneyThis is entirely dependent on the amount you are borrowing and the specific details of the mortgage you opt for.  For example, if you want to borrow $100,000, a standard 30 year repayment mortgage would cost you around $205,000.  The same amount with an interest only mortgage could cost you around $100 a month or more less.  If you want to understand this in more detail then all of these numbers can be laid out for you using an interest only mortgage calculator that many accountants and banks offer.  This will break down the numbers and show you what you can expect to pay out in different situations so that you can experiment and then discover which product is going to best fit your budget.

Jon Mills

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