Everyone dreams of buying a perfect house, but very few people have the money to buy a house. For a vast majority of people, mortgage is the only solution. The most normal people can do is, try to save people for the deposit or the down payment of the house, while the rest of the money is borrowed from the bank. Most of the mortgages work on a repayment basis where a person is required to repay a part of the capital amount and interest every month. The mortgage term usually lasts for about 20 – 30 years. Mortgage is basically a legal contract by which the loan is granted by a lank to a person, with his or her property as security. If the person fails to repay the amount, the bank will sell the property to cover the debts.
Pros of mortgage
- Increased buying capacity
The cost of buying a house is soaring, but the hike in the salaries of people hasn’t been able to match the prices of the house. It is impossible for most people to think about buying a house in such a situation. This is where mortgage comes in. With the option of mortgage, many people are able to buy houses, increasing the buying capacity of people. The middle – class families are provided with good loan schemes which helps them to buy houses instead of wasting their money on renting apartments.
- Easy repayments in installments
The best part of mortgage is that you don’t have to worry about repaying the entire amount in one go. You can pay the money in monthly installments for as long as 30 years. The amount usually gets directly debited from your bank account, which makes it a hassle-free transaction.
- Tax benefits
Availing mortgage loans qualifies you for income tax benefits. This reduces the amount of tax you pay to the government. You essentially save money if you decide to mortgage. This is the main reason why people prefer to invest in properties when their first house loan is paid off.
- Investment
Taking out mortgage is definitely cheaper than renting a house. If your mortgage rates are equivalent to your renting rates, still you are putting money into something you will eventually own. So, mortgaging is an investment.
Cons of mortgage
- You end up paying more
You don’t just have to repay the capital amount, but you have to repay the interests as well. You are carrying an enormous debt for a long time, which is quite a risky thing. If you fall short on your repayments, you could lose your home. Always look for banks providing lower rate of interests. But we know that this is not always possible, as for urgent loans the rate of interest if pretty high. So, always think calmly before taking this huge step.
- Additional fees
Other than the capital amount and the interest rates, there are other fees which seem unimportant in the beginning, but later piles up and becomes a burden. Charges like legal fees and insurance fees are something which cannot be neglected. This amount seems nothing in front of the capital amount, but then this amount adds up to the deposit or the down payment amount which is often not present in the loan scheme.
- Fluctuations in the market
The market keeps going through ups and downs, and your property might not retain the same value forever. The variable rate mortgage hence changes and increases, making people unable to repay.
Finding the perfect bank and the perfect mortgage plan is as difficult as finding the perfect home. You surely don’t want to end up bankrupt or want your house to be taken away, so always remember to research well and make every decision wisely. Consult a few family members and friends before taking this drastic step. A third – party opinion will make things clear for you and you will be able to evaluate everything well.
