Buying a house for cash requires that you have a lot of money saved up for that particular purpose. Unfortunately, very few people are able to do that and most end up taking bank loans to finance a house purchase. The need to buy a house arises from the need to own your own place where you can bring up a family. When you consider the period of retirement, then you see how important buying a house is because after a certain number of years of paying the bank loan, there will be no cost associated with living there or laying claim to that property.
Before a bank agrees to extend a secured credit facility to a customer, they will require some sort of collateral. In most cases, you as the borrower will be required to offer security that is equal to or equivalent to the value of the loan amount. If the security offered to a financial lending institution is a house, then the loan type given is known as a mortgage loan. A Mortgage Loan as it is referred to in short, does not exclusively refer to a loan from a banking institution but any financial institutional with a license to extent credit. It is therefore impossible to determine the type of lender that offered a certain mortgage unless you analyze the agreement.
Residential properties are expensive and when a potential homeowner approaches a financial institution for financing, they require some form of commitment. The typical purchase plan using a mortgage requires that the homeowner contributes 20% of the value of the property and the other amount is offered as a loan. Since the bank must charge the loan, there is an interest amount accrued over the period of time that the loan will be active. Regular installments made to service the loan are meant to reduce the principal amount as well as cover the interest earned over time. Some homeowners prefer to pay installment that would be equivalent to the cost of rent they would pay if they were letting the property while some pay higher amounts to reduce the repayment period.
It is the responsibility of the home owner to make sure that their monthly installment reaches the bank as promised. Once you enter into a mortgage arrangement, you do not have the luxury of falling sick or being without an income generating activity. When you default on a loan installment, you will receive notification from the bank within a few days, so you can be sure that they keep track of all payments due to them. While it is important to maintain your end of the agreement by making payments as you should, life is unpredictable and bad things are bound to happen all the time.
Banks take it very seriously if you are late on a loan installment, or you do not have enough money to settle one. The consequences of failing to honor loan repayment could be as serious as losing the house or getting a bad credit report. This is why it is important to keep paying back the loan by whatever means. The general misconception that people have when they are unable to pay for one reason or the other is that banks do not listen. There are many reasons why a loan installment may be late but the bank will not be aware of it if the homeowner does not present their case to them. Did you know that people have managed to keep their houses bought using mortgage finance and maintained a good credit report even without money to service a loan? The secret lies in the management of the financial situation. No one knows your financial situation better than yourself so it is easy to determine if you will be able to maintain payments or not. Here is how to approach the situation if you ever find yourself stuck;
Does it sound embarrassing to inform your bank that you are broke? The good news is that banks deal with cases of loan default all the time so it will not be a strange occurrence to them. The best time to communicate to the bank that you are not in a financial position to hold up on your payments is before you default. If you do not tell them yourself, they will still find out and then you will not have control of how they handle your case. When you approach the bank to inform them of your situation, mention to them the intention to defer monthly installments for a few months. There is no break to loan repayment so the best way to approach the bank is to express intention to pay but at a later date.
Some banks will offer a mortgage holiday whereby they do not expect any payment from a homeowner on request. It is important to request for a definite time period during which you will concentrate on regaining financial stability. The only time the bank can give you a bad credit rating is when you are supposed to make a payment which they did not receive. Having an arrangement to default is putting the bank in a position where they cannot expect any payment from you and that saves you from a negative credit rating.
It is easy to feel comfortable in your financial responsibility when you have an approved mortgage holiday with the bank. The reality of taking a loan is that even if you have a grace period from the bank the interest on the loan still increases and this makes the financial burden heavier. It is not easy to tell when your financial situation improves and while for some people it never does, some bounce back within no time. It is best to resume loan repayment as soon as possible so that the accrued interest can be cleared. Doing this even if the mortgage holiday is not over will not only give you a good report with the bank but will also save you a lot of money which would have otherwise been used on settling interest on a loan that is dormant.
Dealing with the bank when you want to get a credit facility is easy especially if you meet all the requirements. While they’re in it for the interest they will gain, you are in it for a boost into your finances. What however starts off as a cozy relationship can soon turn into a nasty experience if situations arising are not handled wisely. The first mistake that people do when they are unable to pay their mortgage installments is to play dodge ball with the bank. This not only aggravates the situation because of accrued arrears but also puts the bank in a position of exploring all means possible to recover their money. Taking a mortgage is one of the best options of owning a home but the process needs to be seriously analyzed by the home owner. Here are some handy tips to help avoid a mortgagee sale.
While some landlords want to own a house so that they can rent it out for income, some want a place where they can live without the hustle of paying rent. There is an insatiable demand for rental houses so the idea of being a landlord makes sense when assessed theoretically. The reality of owning rental property however is that there are time when tenants will move out on short or no notice at all and periods when the property must remain vacant for maintenance. The bank needs to receive payments even in low season so it is important to cushion one by setting aside some funds. This will make it possible to do the repairs without having to borrow more money and still continue paying loan installments when rental income is not forthcoming.
Inflation is the reason why interest on bank loans keeps fluctuating. This means that even the rent charged on the property if intended for commercial gain should cover the extra yearly expense of the loan. For the period during which the loan is being serviced, a home owner should be prepared to still dig into their pocket to cover the cost of unbudgeted expenses.
If tenants do not pay their rent on time, that is not a reason for being late of your loan installment payment. It is wrong for a homeowner to schedule an installment around the time when tenants pay them. While it is your right as a homeowner to receive rent from your tenant on time, this is not usually the case. Sometimes the eventualities of life catch your tenants unawares and the first thing they default on is rent. What do you do when you don’t receive rent his month? One option is to inform the bank early that you are foreseeing a default but the best option is to have some money ready to cater for such a scenario.
It is easy for a loan borrower to view the loan amount from the point of view of receiving money, using it and then starting to repay it after some time. There are however expenses to the loan amount that if catered for will leave a significantly lower amount for the intended use. Any charges on the loan such as loan insurance are deducted from the principal amount requested. Other expenses such as house repairs and personal use will eat into the principal amount without any possibility of regenerating.
It is important to do a thorough assessment of one’s financial position before taking a loan. The guiding principal for taking a mortgage should be to avoid it if possible but to plan for it thoroughly if that is the only alternative for home ownership. A mortgage should not be a burden and the people who approach it without being desperate, receive the most of it.
Disclaimer: Always consult your lawyer or an authorised financial advisor before making the final decision to buy or sell a property.