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When applying for a mortgage it’s not about how much you can get, but how much you can afford to miss each month. However much you desire to live in the house of your dreams, you don’t want your mortgage to make all other things in life impossible. But do you know what to look out for before applying for a mortgage? When it comes to applying for a mortgage it’s important to be prepared. Don’t take any risk and read through these tips.
Beware of mortgages with a low interest rate
The advertisements on mortgages with a low interest rate look very appealing, but often they don’t mention the “small print”. The interest will probably be lower at first, but in the long term you will be paying a lot more. The interest will mostly be raised after some time. Usually this happens after the first year, so make sure you go through the small print of the mortgage.
A low interest mortgage isn’t always cheaper
The winnings of a low interest mortgage usually disappear by an expensive life insurance cost or other hidden costs. This is understandable since the mortgage lender wants to make a profit. Therefore it’s possible to lose more money with a lower interest rate. It is recommended to pick a mortgage with a normal interest rate and maybe a cheap insurance.
If you are planning to lend extra money for a home improvement, then this may be important for your mortgage. It may also be important to know if you can migrate your mortgage when moving to another house. These future developments have to be in the advice of the mortgage adviser.
Ask for an explanation of the advice
After the conversation with your adviser, ask your mortgage adviser how he came to his final advice. Let your gut feelings play an important role in accepting this advice. Applying for a mortgage is an important decision where a basis of trust is needed. Buying a house only happens a few times in your life, so make sure you trust the advice of your mortgage adviser for 100%.
Do not be tempted by mortgages investing in stocks
In some mortgage constructions you save up to your final payment by investing the lent money in stocks. Often unrealistic high interest rates are indicated for these mortgages. You are tempted with quotes like: “This mutual fund will have an average output of 22% in 30 years.” What they don’t tell you is that the mutual fund has been composed after this period, which makes it very easy to choose a composition with a high output. Past performance is no guarantee of future results.
Take a suitable period of fixed interest
This is the period for which the mortgage rate is fixed. The longer the period, the higher the interest rate is. It is advisable to choose a short fixed interest period, or a variable rate when the interest is dropping or remains the same for a long time. Choose a longer period if you think the interest will rise.
Applying for a mortgage will probably be the biggest financial decision you will take in your life. You’d better take your time and get some good advice. To get some decent advice from your adviser, it is important that you have a good overview of your personal financial situation, now and in the future. The adviser can then give you several options based upon your personal circumstances and therefore help you professionally when applying for a mortgage.
G.J. Berends often writes about secured loans and mortgages. He has more than ten years of experience in writing about financial subjects and he also writes for the Hypotheken en Geld lenen.
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