Mortgage Loans and Interest Ratesby Admin | August 16, 2021
Mortgage Loans and Interest Rates
Get to know the variables of a mortgage loan and become an expert by comparing the options so you can hire the one that best suits you.
Your home is the most important asset you can acquire. However, for many, the only way to buy one is through a mortgage loan, since it is very difficult to raise the money to buy it in cash.
Mortgage loans are a type of loan that is backed by a mortgage guarantee, which is generally the property itself. With this guarantee, if the client cannot pay the monthly rates, the entity that granted the loan can keep the mortgaged house or apartment.
Unlike other options, this type of loan is intended exclusively for customers to acquire real estate. Therefore, the maximum amount of the loan can only be the total value of the property.
In a mortgage loan, as the applicant, you have an amount of money at your disposal with the commitment to pay it back through periodic installments, together with the interest associated with the financing. They are agreed upon in the medium or long term, with conditions that are defined in a contract.
What are the variables of a mortgage loan?
When seeking financing for the purchase of a house or apartment, you should consider the different variables of a mortgage loan:
Usually you can contract a mortgage loan with terms ranging from 5 years to 30 years. The term has a direct impact on some variables such as interest or monthly payments. The longer it takes to repay the loan, the higher the interest will be, but the lower the monthly payments will be.
On the contrary, when a credit is contracted for fewer years, the interest rates are lower but the monthly payments are higher. The length of time you are granted depends on your financial situation and the use you want to make of the loan, but it also depends on the financial institution where you apply for it.
The monthly payments are one of the key factors when contracting mortgage loans, since they are more than the monthly contribution made to repay the loan along with the interest. Normally, the installments for additional costs and insurance associated with this type of financing are included. Remember that you can advance these installments with extraordinary contributions, but you should review the conditions for doing so.
You should also consider the additional costs when contracting a mortgage loan, some of the most common are: property appraisal, down payment, opening and deed commissions. All these costs can be added to the amount requested in the mortgage loan, but it must be clear that a percentage will be added to the monthly payments. For all these reasons, it is recommended to have a good savings that ideally covers the 10% down payment and these additional costs.
It is common that when a mortgage loan is contracted, this service is accompanied by insurance coverage such as life, damage or unemployment insurance. You have to be aware that these services are to insure the payment, as well as the property while the requirement to repay the mortgage loan is fulfilled.
In the case of home insurance, which is included in some mortgage loans, it is foreseen that the property is protected against damages caused by natural phenomena, so even though they add to the installment, they provide peace of mind and certainty.
The interest on all loans, including mortgages, is the price charged by the institutions for the money lent during the time it takes to pay it back.
The cost of borrowed money is represented by the interest rate and is freely set by each financial institution. The interest rate contained in the Total Annual Loan Cost (TALC), serves as one of the factors that you should take into account before contracting a mortgage loan.
Your monthly payment includes interest, principal amortization and commissions. There are 2 types of interest rates:
you pay the same rate for the entire term of the loan.
changes according to the guidelines of the banks
Remember that it is possible to deduct the interest payment on your house from your annual contributions. If you are going to file your annual tax return, it is advisable to calculate the proportion of the financing that you can deduct.