It is no secret that all over the world, most residential houses and the property it stands on are under a mortgage loan. This is so true for most middle-income families because the only way to purchase a house and property is to have it financed by a bank and other lending institutions. Most mortgages are availed from a large loan company such as a bank.
Mortgages contain three basic components namely the loan amount, interest rate and loan term.
The loan amount is the principal amount you would want to borrow and most mortgage companies or banks provide an 80% loan on the property value that you intend to purchase. The interest rate is the amount you have to pay on the loan and this can be categorized into a fixed or flexible rate or a combination of both.
The payment terms for a mortgage loan usually ranges from 10 to 30 years. These are usually referred to as long-term loan. Adding up the total amount of interest based on the number of years to pay plus the principal amount will give you the overall amount of your loan.
Amortization of home loan mortgages is usually paid on a monthly basis and they are usually cut into two portions namely the principal amount and interest.
When entering into any type of loans especially a mortgage loan, the most important thing to consider is to be aware of your borrowing capacity and your capacity to pay. There are online tools on the net that you can avail of to calculate these factors.
However, you must understand that these will not actually give you an exact answer but the mortgage company, on the other hand, will take into account several specific factors relative to your credit and income history to calculate the amount loan that they can provide for you.
The result from this assessment will tell you the amount of money you can borrow. The factors that the lending companies usually take into consideration are your incomes, current and previous liabilities which include your credit cards, the number of dependents you have and any other incidental liabilities like home or apartment rentals and vehicle payment schemes. Not all lending companies have the same protocol when reviewing a loan application. As a matter of fact, almost all of them have different procedures in approving a mortgage or bank loan application.
Once you get an estimate of the amount of money you can borrow from the lending company, it is important that you analyze whether you can comfortably pay the monthly amortization of the loan. It is important that you should never base your decision on the amount prepared by other entities even if the amount came from the lending company.
Remember that there are lending companies that will offer you a higher loan amount even if they know you may have a hard time paying the amortization. These are the type of lenders you should avoid doing business with. What is vital is that you can comfortably and realistically afford to pay the monthly amortization of the loan based on your current net income.