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Home Mortgage Loans are Not for Everyone
Is a Home Mortgage Loan for You?
Do you feel the pressure of buying your own home and taking out a home mortgage loan? Are you feeling uncomfortable about the prospect of taking on the responsibility? In this article we will take a look at the process involved in obtaining a loan and servicing it and consider if there is any alternative.
The first step in obtaining home mortgage loans is to approach either the mortgage companies or a bank to enquire whether you might qualify. Usually you will have an initial conversation with the lender to determine your situation and then you will be asked to complete many forms. You will also be asked to provide copies of your various financial statements. This can be a daunting task and many people feel uncomfortable about this.
Another aspect in obtaining home mortgage loans is that you will be required to have some sort of deposit. If you qualify for a loan that is 90% of the value of the home you wish to purchase then you will need to provide the remaining 10% plus the amount of stamp duty and legal costs. Quite a number of people are able to save up to 10% but anything above that is beyond them. The remaining balance needed for stamp duty and legal costs could be supplied under the First Home Owners Grant or otherwise may be lent by family members. This means that the level of borrowing undertaken is very high, with the consequence that the repayments are high.
Mortgage Rates and The Mortgage Loan
Generally the interest on home loans is either fixed or variable. Sometimes, you can obtain a combination of these two. If you go for a fixed rate then it is usually a bit higher, but the advantage is that you know what your repayments are. If you chose a variable mortgage rate then you are subject to the changes in the market place. Over the past few years we have seen rates rise dramatically and this puts a lot of pressure on household budgets. Today, the reverse is happening. Rates are dropping dramatically much to the delight of those with a variable mortgage rate. However, these times are not good for those with a fixed mortgage rate. It hurts those with a fixed mortgage rate to see variable rates drop while their fixed rate stays several percentage points above.
It is almost impossible to get it right all the time. The best you can do is look at the market when you take out your loan and get advice as to what is likely to happen in the next three to five years. It is this very uncertainty about future rates and, therefore the monthly repayments, that makes some people uncomfortable in taking out a home mortgage loan.
Mortgage Companies – How to Find the Right One
Is one mortgage company better than another? How can you know which mortgage companies are better than others and how do you judge this? There are no easy answers to these questions. However, a simple way to protect yourself and ensure you get a good deal is to engage a mortgage broker.
Did you know that when you engage a mortgage broker he or she is engaged to act on your behalf? A mortgage broker is someone who acts independently of the mortgage lenders, being self employed or engaged by a broking company. However, be careful because the term 'mortgage broker' can be confusing when it is used by the banks. They sometimes refer to their loan officers as mortgage brokers. In this case the broker does not work independently and they are not working for you but for the bank.
The Mortgage Brokers Responsibility
The task of a mortgage broker is to source the best loan for you from the various mortgage companies on their books.
Apart from being obliged to work on your behalf and source a loan with good terms for you there are other advantages in using a mortgage broker. They will guide you through the process as it can be quite daunting. They will assist you in filling out the many forms and they do not charge you for their services because they are paid by the mortgage companies.
In spite of all these considerations, however, is there another way to purchase your home without a loan sourced through the mortgage companies?
An Alternative to Home Mortgage Loans
In the early 1900s very few people owned their own home. At that time banks weren't in the business of lending money to ordinary working-class people so most were forced to rent. However, as people gained more prosperity it became fairly common practice to purchase homes on 'vendors' terms'. Basically, this means that the purchaser pays a regular sum to the vendor in lieu of rent and this sum goes towards paying off the price of the house. Many homes were sold using this method in North Sydney and in Canberra.
In this way, there is no mortgage and the purchaser can switch from paying rental to paying off the house. Generally the payments are higher but the advantage is that their money is going towards buying an asset.
There are people today who are still willing to sell on vendors' terms, but you will find some variations as to how they are carried out. Generally the purchaser will be required to provide some sort of deposit although it will be substantially less than 10%. A contract is entered into between the parties and a sum is agreed on for the weekly or monthly repayments. The purchaser then moves into his own home. Because it is his property he can begin making improvements and thereby increasing its value. In a few short years the purchaser will have quite a bit of equity in their home and they may then chose to obtain a home mortgage loan and pay out the vendor completely.
