Getting a mortgage or home loan entails a lot of research and questions.
After all, it’s one of life’s biggest decisions because the loan amount and
the terms that you will get will dictate the rest of your financial
choices.
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7 Practical Tips On How to Enjoy Savings When Getting a Mortgage Loan
On the other hand, getting a mortgage loan is a decision that is worth
celebrating because you are finally taking the first step in bringing your
dream home to reality. While you are excited, it’s also good to delve deep
into the essential facts about mortgage loans and how you can eventually enjoy
savings even when you are paying your monthly amortization.
The factors that determine the mortgage loan price
If it’s your first time to apply for a mortgage loan, you will definitely have
a lot of questions going on in your head.
To make things simple, you just have to keep in mind four key concepts
involved in determining the price of a mortgage loan: the loan amount, down
payment amount, interest rates, and loan terms.
Let’s define them quickly:
1. Loan amount
The loan amount is the total sum that you are interested to borrow. It follows
that the bigger the amount that you are borrowing, the bigger your monthly
amortization will be.
2. Down payment
The down payment, or what is termed by some financial institutions as the
deposit, is the initial amount that you have to pay to the lender (bank,
credit union or cooperative). Keep in mind that the bigger the down payment,
the more that you can negotiate for lower interest rates.
3. Interest rates
The interest rates are the percentage charged by the lender against the total
amount that you borrowed. For mortgage loans, it would also help to know if
it’s add-on interest rate (rate applied to total amount then divided by the
total term), nominal rate (the disclosed interest rate on which monthly loan
payments are calculated, again, this is dictated by the length of the loan).
The lower the interest rates, the lesser the monthly amount that you have to
pay.
4. Loan term
The loan term is the length of payment of the housing loan, usually stated in
the number of months. The shorter the loan term, the lower the interest
charges.
These four factors will eventually dictate your monthly amortization or the
amount that you have to pay each month.
The monthly amortization versus your monthly income will give you an idea if
you can afford the mortgage loan or not. Likewise, it will also tell where you
need to adjust in terms of your finances (i.e. expenses that you can forego in
favor of getting a home loan) if you do decide to go ahead with the mortgage
loan.
Lastly, remember that you should maintain a good credit history because will
determine your capacity to get a mortgage loan or any other type of loan in
the future. If you get a good credit score, chances are financial institutions
will grant you a loan because of your credit trustworthiness.
The different uses of housing loans
When we think of getting a housing loan, we usually picture a house and lot.
Yes, you can use a mortgage loan to buy a house and lot but it can also be
used for the following purposes:
- Purchase of a lot only
- Purchase of a condominium unit only
- House construction
- Home renovation
You can even get a credit line for renovations and refinancing using your home
as collateral.
How to save up when getting a mortgage loan
Is it possible to get savings even when you are borrowing money for your
house? Yes, it is! Here are several ways to enjoy savings on your mortgage
loan:
1. Buy a house when real estate prices are down
Buying a property when the market price is low is perhaps the most
straightforward advice that you can get on how to save up on your mortgage
loan. If the market price is down, that means that the amount that you have to
borrow need not be too high.
The COVID-19 pandemic has caused real estate prices to contract. According to
a report published by the
Bangko Sentral ng Pilipinas, real estate prices has declined during the latter part of 2020. If you have
the means, this is the best time to apply for a mortgage loan and buy a house.
2. Get a loan when interest rates are down
This is another practical suggestion to enjoy savings on you housing loan:
borrow when interest rates are down. Simply put, when interest rates are low,
your monthly amortization will also be lower.
3. Go for shorter terms
As I’ve mentioned above, the shorter the loan term, the lower the interest
rates. That’s because a shorter term signifies that you are serious in paying
off your obligation promptly.
4. Use a mortgage calculator
Using a
mortgage calculator would allow you to compute for your monthly amortization just by
providing the total price of the house, the down payment or deposit amount,
the total mortgage amount, the interest rates, and the loan terms. Once you
have computed the total monthly payment, you can make a decision whether you
can afford the loan or not.
The mortgage calculator may not directly provide you with savings but it can
greatly help you manage your finances. With a mortgage calculator, you
significantly reduce the risk of you entering into a contract that may be
burdensome to you in the long-term.
5. Take advantage of rebates
Some banks offer rebates or cash back if you make advance monthly payments as
well as excess amortizations. It’s good to take advantage of this setup
because it’s straight credit to your account.
6. Pay via automatic debit arrangement
Other banks also give a premium for automatic debit arrangements. If you are
certain that you would have a steady flow of income into your savings account,
you can set this up for an automatic debit arrangement to save you the hassle of
remembering your monthly dues.
What’s more, some banks can give you preferential rates when you go for this
type of arrangement because that means that you are guaranteeing them of fixed
payments.
7. Choose locked-in interest rates
One other important aspect in mortgage loans that you have to remember is the
repricing of interest rates. Yes, rates may change or get repriced versus the
quoted interest rates without prior notice. This means that, depending on the
market condition, it may go up or go down.
In the end, it can affect your monthly amortization. Inquire from you bank if
you have the option to lock your interest rates, provided that you are
comfortable with this arrangement.
Epilogue
These are some practical tips that you can use to enjoy savings on your
mortgage loan. This list is not exhaustive but this will give you a fairly
good idea on how to make wise choices, especially for first time mortgage loan
borrowers.
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