Mortgage Basics: Things to look consider while taking a mortgage loan

Owning one's home is everybody's dream, but realizing this dream in turn calls for a home mortgage. A mortgage is a loan that you bear to pay for a home or the land on which it stands, which can be taken away in case you fail to repay the loan. So while you are planning to buy a house, you must evaluate your finances, check your affordability, opt for a loan basis your budget and investment strategy.

It is important to understand what mortgage loans are and how they work, which is quite confusing to many. Thus, here are a few basics that might give you a brief idea on what you should be careful of when planning to take a mortgage loan and avoid some common but costly mistakes.

To begin with, mortgage home loans commonly have a tenure of 15 to 30 years. Further, the two basic categories of mortgages are the fixed-rate and the adjustable rate mortgage. Amongst these two categories, there are quite a number of variations but the typical loan payment consists of €principal' payment and €interest' payment. As goes the name, fixed-rate keeps your interest rates and monthly payments static for the entire term. In an adjustable rate mortgage, the interest rate is fixed for initial few years, but is subject to change every consecutive year depending on the market interest rate; thus changing the pattern of monthly payments basis the change in interest rates.

In order to determine your mortgage rate, you must answer following few questions:

What is your net worth?

A lender will consider your net worth and loan repaying ability before extending you the loan.

How much is your affordability?

Knowing your affordability can minimize any chances of default on the loan. A mortgage calculator can help you assess the same basis your budget.

How is your credit report?

A credit report is an important factor that helps in determining if the loan will be sanctioned to you. Any negative listing in your report might become a cause of concern, when applying for loan.

Have you calculated your down payment costs?

When applying for loan, most lenders demand a certain amount of down payment. Most banks ask for a certain percentage of the value of your home or land for which you desire a mortgage.

Helping you realize the dream of owning a home and assisting you in one of your most important financial decisions, banks like RAKBANK lend you flexible, affordable and easy loans in the UAE.