Getting the house of your dreams may just be at the tip of your fingertips. If you don’t have a hefty sum in cold cash, but you have a stable source of income, then perhaps a mortgage is the answer. However, you need to be qualified to get a home loan. Apart from your income sources, a lender also considers your credit scores and income-to-debt ratio. But with the eligibility of getting a home loan, you can be sure to secure a house for your family. While others are not comfortable with the idea of carrying a big debt for quite a long period of time, there are several reasons why you should consider getting a home loan.
Home Value
Regardless of the tenure or payment scheme, the value of your property is unaffected by your mortgage. A mortgage is just an agreement between you, the borrower, and the financial institution or the lender that you will use the property you purchased using the loan proceeds as a collateral until the loan is paid off. Taking out a mortgage to buy your dream house allows you to grow your equity in parallel to the increase in value of your property. Property value tends to rise over time, especially in prime locations or areas that are bound for development.
Home Equity
The equity of your home is the difference between your home’s current market value and the outstanding balance of your home. In as much as the property value increase over time, your outstanding balance is reduced, provided you are diligent in making payments. It follows suit that your home equity increases over time. Hence, it is not true that the bigger your mortgage is, the lower the equity. On the contrary, a larger mortgage may just lead to a higher equity.
Interest Rate
Home loan interests are considered as the lowest interest rates when compared to other loan types such as a car loan or a personal loan. The reason behind this is that your home becomes a guarantee to the lender that you will be able to pay off the amount of money you borrowed. Offering your house as a collateral for the loan is how mortgages work. However, you need to be able to conscientiously manage the mortgage payments on time in order to keep your property because in case you are no longer able to sustain the loan payments, the lender has the full power over your property.
Tax Considerations
Depending on your country of residence, tax can be deducted from the interest you pay for your loan. This entails that if you are already paying mortgage taxes, your federal income tax and state income tax can be reduced, depending on your tax bracket.
Payment Scheme
More often than not, managing mortgage payments tend to be more effortless in the long run. There are home loan agreements that offer a fixed mortgage payment for a certain number of years, before the mortgage interest is recalculated for another definite number of years. This is considered as the adjustable rate mortgage wherein the interest rate can either increase or decrease based on the market conditions. Nevertheless, the best part is, there are even mortgages that are fixed for the entire duration of the home loan. These are known as fixed mortgage. Why is this favorable? In layman’s term, factors like inflation affects the value of money. With inflation, the same groceries that you buy for a hundred dollars can be purchased for a thousand dollars in ten years’ time. Hence, the same amount of mortgage that you are paying now will be considerably lower in value in the future. This means that you can be paying a fixed mortgage for a period of 20 years, but your income can double over time, making the same payment more manageable or cheaper depending on your income.
Investment
Apart from your home being your primary investment, paying a fixed mortgage will allow you to allot your other income earned in other forms of investment such as the stock market. With an indirect relation, mortgages actually allow you to create more wealth because even if your house is mortgaged, you can sell it in its current market value. You can then apply for another mortgage to buy a new home. . You can use a portion of the proceeds from the sale of your old home as a down payment and invest the rest. Depending on your flexibility in moving and the term of your mortgage, you can find yourself in this cycle a couple of times, thereby earning enough profit that you can leverage upon to build your wealth.
Flexibility
A home loan allows you to have an emergency fund. With a home loan, you would not need to shell out a hefty sum on the forefront, leaving you with no liquid assets that you can use in case of emergencies. Hence, a mortgage will allow you to have some cash on hand. However, it is necessary to consider all the factors that may affect your home loan scheme. Apart from the interest rate, consider also the loan tenure in relation to your income sources. With different home loan payment schemes, you have the flexibility to balance between your wealth and your debt. Nevertheless, with or without a mortgage, you are bound to pay for taxes and insurance fees for your home. As such, the key really is in building your wealth and not running from debt.
With today’s technology, the process of securing a home loan is already streamlined and made more convenient. Owning a home can be a challenge because of the extreme costs of real estate properties. Add to this all the necessary taxes and fees needed to maintain the property. A home loan may just be the answer for you to turn the house of your dreams into reality. With a flexible and manageable payment scheme, as well as reasonable fees and interest rates, a home loan is a convenient and safe way to buy the home that you deserve.