Buying a house is a tedious process. This is a significant decision in one’s life. You would need a lot of time to think and do some research, primarily because of the large amount of money that you have to shell out to complete the purchase. Very few home buyers can pay everything in cash upfront, and many would opt to get home loans instead. Much time is actually spent on the mortgage application, especially if you are doing this for the first time.
It may be daunting for you to think about getting a home loan. After all, the payment term could take twenty or thirty years. You might worry about the things that can happen in that time frame. But there are also advantages to it, and one of those is you can manage your cash flow better. Here are some other features which might appeal to you and change your perception about loans.
Types of Interest Rates
There are two types of interest rates you can choose from in a mortgage loan. The first one has a fixed rate and the other has an adjustable rate.
Having a fixed interest rate throughout the term of the loan is suitable for those who plan to settle in their purchased house for good. This way, you can make big-ticket purchases or investment decisions since your payments for amortization are already factored in. You do not have to worry about that changing.
An adjustable interest rate, however, is the opposite. When you choose this option for your loan, you are usually given a fixed interest rate for the first ten years or so. After that, it will start to adjust depending on the market conditions. There is a risk-reward system in play here because you are taking the chance to pay with lower rates but at the same time, you are exposing your finances to higher rates.
Tax-Deductible Interest Payments
A qualifying amount of the mortgage interest can be deducted from your taxable income. This will be dependent on the value of the loan and the date that it was taken out. This will not remove the interest from your debt resulting from the mortgage, because the main point of this is to reduce your tax amount. You can still consider that as money you have saved.
A second mortgage is basically another loan that will be taken out on the equity value of your house. This will give you financial flexibility. The money you will save here could go to renovation or improvements that can be done to your house, or you could spend it elsewhere. Just remember that this loan is still secured with the house. Missing some payments can still lead to a foreclosure.
Mortgage Redemption Insurance
The uncertainty of life could hold off one from obtaining a home loan. If the unexpected happens, you do not want to leave that as a big burden to your family. This is why the lender will require you to get a mortgage redemption insurance or MRI once you become a homeowner. Basically, this is a life and disability insurance that will pay for the remaining loan amount should a borrower die or become incapacitated.
The MRI will have you pay a premium on top of the principal and interest amortizations, but this will diminish over the course of the loan’s term.
Hopefully, all of this information will give you a better overview of getting a mortgage. It is nice to know that there are mechanisms that are initiated by both public and private financial institutions that will have you save money in other areas and also give you some peace of mind. If you need help, you can reach out to your mortgage agent so you could learn more. They should be more than happy to assist you with your questions.