Making the decision to purchase a home of your own is one of the most exhilarating (and also one of the scariest) experiences in life. It signifies a desire for independence — your home will be your responsibility, something that will be placed in your name. Buying a house means that you are ready to live on your own or with the family that you are building, on your own terms.
Of course, purchasing a house also means you’ll be making a long-term financial commitment. It’s not very likely that you can pay the entire price of a house upfront — especially if it’s your first home. Therefore, you will need to choose a payment process that you can successfully follow throughout a specific period of time. And the most common instrument that people turn to when it comes to buying a home would be a mortgage.
What is it?
So what exactly is a mortgage? First time home buyer, listen up: A mortgage is a type of loan that is secured against a property. This means that you will be borrowing the money you need to buy the property you’ve selected, and then you’ll be repaying the mortgage over an agreed-upon period, which will depend on your specific financial needs and circumstances.
You need to understand that keeping up with repayments on your mortgage is crucial; if you fail to pay, then the property you’ve worked hard to find may be repossessed. So you need to take the time to figure out a repayment schedule that you can truly manage, and then find a reliable provider of mortgage products who can help you secure the best deal.
Are there different types of mortgages to choose from?
Not all mortgages are the same; they will have different repayment options and interest rates, so you need to pick one that meets your needs and payment capabilities. Here are two common examples:
Variable or adjustable rate mortgages — Your lender can set different interest rates that will cause your payments to go up or down. This type of mortgage comes with lower initial interest rates, and therefore, lower mortgage payments made each month. Qualifying for a fixed-rate loan is also simpler (compared to a fixed-rate loan) because the payments are more affordable.
With this type of mortgage, however, you are highly at risk of experiencing payment shock, which occurs when the interest rates rapidly and unpredictably increase. You may find yourself suddenly facing a huge increase in your monthly payments, which you might find difficult to stay on top of.
Fixed rate mortgages — Here, the interest rate will remain the same for a given period of time. This is preferred by many home buyers because it enables them to spread out the huge cost of purchasing property over a long time period, thus making manageable payments that will not be subjected to sudden increases.
It’s important to consider, though, that it can be difficult to qualify for a loan because the payments that come with fixed rate mortgages are less affordable compared to those of other mortgage types. The higher interest rates also limit the price of the properties that you can consider buying, since the amount of money you can qualify to borrow is reduced.
Can you get help with choosing the right mortgage type?
A financial decision as big as choosing the mortgage product to use for buying your first home shouldn’t be made without getting expert guidance on the matter. You can hire mortgage specialists who can help you determine the important home buying details that could point to the correct mortgage for your needs (the type of home you need to buy, its specific features, your financial capacity, the loan amount you can realistically qualify for, etc.). These professionals can make the purchasing process as easy and hassle-free as possible.