How much mortgage can I afford? Do you know how much mortgage you can afford? For some persons going through this article right now, this is not something new, while to others it is entirely new as they haven’t come across this term before. Getting to know what mortgage is and how much of it you can afford is very important. Well if you know the right amount of mortgage you can afford, great. But if on the other hand, you don’t know how much mortgage you can afford, this is your lucky day. To get the knowledge you are looking for, continue reading.
How Much Mortgage Can I Afford
Well over the past years and most recently the term mortgage has grown so popular among people. It is even a common belief among a vast majority of mortgagers that it is impossible to buy anything with high value such as houses without a mortgage. Well they just might be right. The rate or amount at which valued properties such as hoses are sold are quite high and not everybody can afford it. This is where mortgage comes in. imagining coming up with hundreds of dollars together as one lump sum. This can actually be done but this is a privilege reserved for only but a few.
What Is A Mortgage
For you to get a better understanding of all I have been saying in this article and the things I will be writing about it is important that you know what mortgage is and how it works. So many people already know what mortgage is and how it works, but there are those who do not know about this just as I have mentioned earlier in this article. And for the benefits of these persons, I will be reviewing what mortgage is.
A mortgage is a means to use collateral as a guarantee for a loan. To make it simpler, a mortgage is a way of applying for loans. This is not the traditional type of loan we all know about. This type of loan is given for the sole purpose to purchase a valued property. Many people who have experienced mortgages before have done this in the bid to buy houses, cars and so much more. Furthermore, a mortgage can be a way to use one’s property to get a guarantee for a loan to get money. This loan is therefore guaranteed by the house.
In a mortgage, there are two parties involved. These two parties are the debtor and the creditor. The debtor is the owner of the property. This person can also be referred to as the mortgagor. The creditor, on the other hand, is the owner of the loan. This person can also be referred to as the mortgagee. The creditor will receive the money-back with interest. When the agreement is made the debtor will receive the money with the loan. If the debtor refuses or is unable to pay the money or loan, the creditor here which can be a financial institution may take the property in place of the loan. This process is known as foreclosure.
Other Types of Mortgage
Now there are various types of mortgages today. Below are some of the types of mortgagees we have;
- English mortgage.
- Reverse mortgage.
- Simple mortgage.
- Usufructuary mortgage.
This is one of the types of mortgages we have and this is the type of mortgage where ownership of property is transferred to a mortgagor on the condition that the mortgagee will transfer ownership on repayment of the loan. Here the borrower will promise to repay the borrowed money on a certain date. The borrower, therefore, transfers the property to the lender. When the money has been repaid the lender retransfers the money.
Here on this type of mortgage, the lender pays the normal monthly installments to the borrower instead of the borrower paying the lender hence its name reverse mortgage.
Normally when one can’t pay for a mortgage loan the property is foreclosed. On this form of mortgage known as simple mortgage, the property is sold and the proceeds to be applied in payment of the said loan.
Advantages and Disadvantages of Mortgages
Mortgage can be a good way to get that valued property we have always dreamed of, but there are some downsides associated with mortgages. In a bit, I will be telling us of some of the advantages and disadvantages of mortgages. With mortgages the ownership of a home becomes affordable. This is also a cost-effective way of borrowing.
One of the disadvantages of mortgages and most loans out there today is that you will get to pay more than you actually borrowed. There are also hidden fees and charges when it comes to mortgages. This is something we all should be aware of and therefore watch out for these fees and charges.
How Much Mortgage Can You Afford
Getting mortgages is one thing and getting to know how much we can really afford is another thing. Although the bank or financial institution with which you are allying for a mortgage with will help you in calculating the amount you can afford, it is important that you get to know a thing or two about how the whole thing really works.
To calculate or know how much you can afford you need to take into account a few primary things. You need to take into consideration your monthly income, monthly debts such as your car loan and student loan payments. You also need to put into consideration your savings which is very important in case of the rainy days. These are the things that the financial institution will put into consideration before putting you in their mortgage program.
There is a term known as the 28%/36% rule. Now what is this rule and why does it matter. It wasn’t mentioned in the course of the article, but I am making mention of it here now, there keep adept attention to this. The 28%/36% rule states that you shouldn’t spend more than 28% of your gross income monthly on home related costs and on the other hand 36% on total debts. This is also including your mortgages, credit cards and loans like auto loans and student loans. For a better understanding here is an illustration. If you are earning 5,500 USD and you have 500 USD as existing debt, your monthly mortgage payment shouldn’t exceed 1,480 USD.