So, you have made a decision to take a loan and purchase real-estate and you are extremely excited to start a new period of your life as a property owner. First of all, congratulations! Whatever you might be considering, be it a condominium, a flat, a house or a cabin in the woods, that is an extremely mature decision to make. However, that is also a decision that will have serious financial implications for a long period of your life, so you shouldn’t let the excitement cloud your judgement regarding the decisions you are going to make when borrowing the funds from a bank. There are several things to consider before you agree to settle with conditions set by the bank.
1. Know what you are getting into
Before you take out a housing loan you should know that mortgages or housing loans are secured loans. What this means is that when the borrower is taking a loan, they pledge some assets, which in this case is the house being bought, as collateral for the loan, as Investopedia.com explains. In other words, by making the borrower pledge their property as collateral, the bank ensures that it does not experience financial losses in the event that the borrower fails to make the payments. To put it simply, once you take out a housing loan you are obliged to cover the debt or you face losing your property.
However, it is not as scary as it sounds. There are some advantages when it comes to secured loans. Moneyadviceservice.org.uk informs that one of the benefits of a housing loan is that the interest rates for it are lower than for an unsecured loan. Another perk is that the payments are made on a monthly basis and you have some freedom for planning your expenses. Speaking of planning:
2. Think ahead
Planning your finances is essential when you are thinking of taking out a housing loan. There are several reasons to take tracking your finances seriously. First of all, it gives you a very clear idea of how much income you have and where it all goes. Once you have a housing loan, the clear understanding of your budget and a spending plan will help you manage bank payments and the newly appeared house insurance and maintenance expenses . Tracking your finances and having a spending plan will help you before you take out a loan, too.
A YouTube channel titled The Financial Diet explains that a spending plan is an extremely effective tool to cut unnecessary expenses. Having a visual representation of the accumulative cost of all those lattes in a form of spreadsheet by the end of a month will help you manage your spending habits, which in turn will leave you with extra money. Extra money which can be put towards the deposit on the property that you are about to purchase.
Banks are much more willing to lend and to offer better loan conditions and lower interest rates to those borrowers who are ready to cover a part of the cost of the purchase themselves. The more you can cover, the better are your chances of getting a loan which suits your needs. When it comes to loans and borrowing, having your own savings gives you an upper hand in negotiations. So, be smart and prepare in advance.
3. Be realistic
Be honest with yourself and rely on facts when it comes to your spending capabilities. If, for you, this is the first purchase this big, think hard about what you need and how you are going to manage your new responsibilities. If you live alone or with a partner and no children, chances are that you don’t need a 10-bedroom villa with a swimming pool. I know it would be amazing to have it but maybe not at the moment. You might want to consider a condominium, which is something that you, as an aspiring property owner, could truly manage such as old klang road condo. Prices come into play as well here. The type of property that you are aspiring to own can have real impact on your chances of getting a loan.
4. Look for the best deal
So, you are familiar with the implications of a housing loan, you know your budget and you know what you want. What’s next? Start your research. In general, you should be looking for the lowest interest rates and favourable terms and conditions for the loan. You should seek lowest interest rates to ensure that your monthly payments don’t accumulate into something that you cannot handle.
Beware of deals which leaves you susceptible to lock in periods with applicable penalty fees. As Loanstreet.com explains, in the context of home loans, a penalty fee means that without paying a penalty, which is a percentage calculated according to your outstanding balance, you are not able to cover the outstanding balance or refinance the loan within the lock in period.
You should be careful with these sorts of deals because they significantly restrict your financial freedom and leave you highly dependent on the bank. However, if you can’t avoid a deal with a lock in period, you should always consider the option with the shortest lock in period.
Try and look for a flexi loan. Loanstreet.com explains that a flexi loan is a type of arrangement which offers the borrower the possibility to deposit funds to the loan account in whatever manner the borrower wishes without additional fees. The site adds that the flexibility is reached by linking the Current Account to the loan. The payment towards the loan is transferred from the Current Account on a monthly basis. However, not all banks offer this option.
Semi-flexi loans are also an option. This deal allows the borrower to make additional payments towards the loan to reduce the amount owed, Loanstreet.com states. There is also a possibility to access the payments made ahead of schedule in case there is a need for emergency funds. While the transaction is done for a fee, you still have some freedom over your funds.
So, make sure to have a detailed conversation with a bank consultant before you agree to anything and try and find the best deal for yourself. To get a second opinion, you should consider an appointment with a financial advisor to clarify any terms or conditions that might not be entirely clear to you. To make the process of approving your loan as efficient as possible, prepare all the documentation required by the bank in advance .
5. In short
All in all, be smart about the financial decisions you make. Before you go out and get a housing loan, you should know what a housing loan means and what kind of conditions are offered to you by a bank. You can prepare for financial challenges by tracking your budget and planning for payments. Savings are extremely benefiting when you are looking for loan because you have more leverage in negotiations. You should set yourself realistic goals and always investigate the conditions offered to you by the bank. With all that in mind, go out there and buy yourself a condo!