Today it is very common for some people to have applied or are thinking of applying for a mortgage for their homes. And, this is a good way to obtain a loan for anything you need or simply to acquire a new home or car.
What is a mortgage?
A mortgage can be defined as an obligation obtained by a person with another individual or organization, through which the person who acquires the obligation must pay a specific sum of money during a specified period of time.
The person who acquires the mortgage places as collateral a home or a valuable asset such as a car. And the person or institution that makes the loan has the right to seize the home or object if the person does not meet the payments.
They are also often used a lot for the purchase of a home, where the item to be mortgaged is the home itself. Generally, the purchase is made by the person or institution granting the mortgage and the property remains in their name until the other party terminates its obligations.
Differences between a mortgage and a credit
The difference between the two is quite simple. In a mortgage, a property is placed as a guarantee of payment, while in a loan the only guarantee is the reputation of the person. Also, the payment terms in mortgages are usually of long periods such as 20, 25 or 50 years, while the time for the payment of a loan is shorter.
Factors to consider when applying for a mortgage
Mortgages are normally requested from banks, where each one handles a different interest rate and terms. That is why you should choose one that offers you the best rates and comfortable terms to pay. Next, you will see some of the things you should take into account when requesting a loan from a banking institution.
- Amount requested: you must be clear about the amount you will request from the bank. You cannot request more than 100% of the cost of the property. Depending on the bank, they can cover 80% or 70% of the total cost, so you will need to have some savings to cover the rest of the payment.
- Minimum savings: in general, the bank will ask you for a minimum savings that is established by both parties. By law, the minimum required is 15%, however, it will depend on your credit history and your ability to pay. The higher the initial savings, the lower your monthly payments.
- Payment term: the advantage that mortgages have compared to a traditional loan is the payment term. This can range from 5 years to 40. Although this can work against you. Keep in mind that the property is owned by the bank until you finish paying for it. On more than one occasion, people who have a very long mortgage die before the property is theirs.
- Interest rate: this is one of the most important factors when applying for and calculating a mortgage. The interest rate represents the additional amount that you will have to pay to the bank, that is, its earnings. This varies depending on the amount, the term and the bank, try to choose the bank that offers you the least amount of interest. These are usually between 0.5% and 5% of the total loan amount.
How is the monthly amount to pay for my mortgage calculated?
If you want to know when you will have to pay your mortgage monthly, then I will show you how you can calculate a mortgage. The first thing you will need is to know all the data and amounts that we talked about above. With that we can get down to work.
Suppose we want to acquire a fairly simple property that costs 100,000 dollars and we only have 20,000 dollars saved. The bank has offered us a fixed interest rate of 1.5% on the total amount loaned and a payment term of 30 years. Now we begin to calculate, of the 100,000 dollars that the property costs, we will put 20,000 out of our pocket, that means that the bank will lend us 80,000 dollars. But it does not end here, there are some extra expenses that must also be covered, such as the notary, registration, taxes and other extras that the law requires. This value is usually around 10-15%. This varies depending on the area you are in. But in our case we will have to pay 12,317 euros in total. So the total amount that the bank will give us will be 92,317 dollars.
These 92,317 dollars will be the basis for calculating the interest and later the amount of our monthly payment. At that amount, we will get the 1.5% monthly interest that will correspond to 22,380 dollars that is added to the 92,317. So in the end it will give us 114,698 that when dividing it by the number of months it will give us 319 dollars which will be the amount to pay. However, these calculations are not so simple, to calculate the amount of interest you will have to make an interest amortization table, in this case it has been omitted so as not to make the post too long and tedious.
Application to calculate mortgage
But there is a much simpler method and that is by using a mortgage calculator. This application will be very useful for these cases. The calculator I’m talking about is called “Mortgage and Loans – Calculator” and you can find more information about it on this website. You can find it very easily in the Play Store and start calculating your mortgages like a pro.
To calculate a mortgage, you simply have to open the application and once inside press the “new calculation” button. On the screen that will appear, you must enter the requested data (the same ones that we have discussed above). And once you have entered all the data, you must press the “calculate” button. Then we will be shown the monthly amount that we will have to pay. And that would be the entire process to calculate mortgage. As you can see it is really simple.
If you are thinking of acquiring a new property, a mortgage is a good alternative if you do not have the money to make the purchase. Remember that before applying for a mortgage you must have at least 15% of the total amount of the purchase, for example, if you are going to request 100,000 dollars, you must have at least 15,000 dollars plus additional expenses that can represent around a 10 to 15% more.
Keep in mind that the shorter the term in years, the amount of interest to be paid will be lower and therefore, the greater the number of years the amount to be paid will be. As long as you have some extra money you can make a payment to your mortgage, this will make you pay it faster and will reduce the amount of interest to pay.
Before applying for one of these loans to the bank, it is important that you can calculate the mortgage manually or through the application to calculate the mortgage that we have taught you, in order to determine if you have enough payment capacity to incur this expense .