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Mortgage Guide
What is a mortgage?
A mortgage refers to a loan that you
take out to finance a property or
land purchase.
• The collateral of the loan is the property you have
bought with the money.
• Should you fail to be up to date with repayments, the
lender could repossess the property and sell it off to
pay whatever you owe.
• It is critically important that you choose a repayment
schedule that is manageable.
• Majority of mortgages have a repayment period of 25
years although the term can also be longer or shorter.
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Who is eligible for a mortgage?
Before lenders can give you mortgage loan, they
will want to know if you can repay the loan
successfully. The following are some of the ways
to determine if you are eligible for a mortgage
loan or note:
• Check your credit history
• Check your debt ratio
• Use an online mortgage calculator
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Different types of mortgage products
There are different types of mortgages and the kind you choose will
have different repayment option.
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Fixed rate mortgage
Variable rate mortgage
Tracker mortgage
Capped rate mortgage
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Collared mortgage
Cashback mortgage
Offset mortgage
Discount mortgage
Choosing the right mortgage
Fixed rate vs. Adjustable Rate
• If you plan to stay in your house for many years, then it may be best to lock it in a
fixed rate.
• If you plan to sell the home in 3-5 years, you would be smart to go for a hybrid ARM
that has an initial fixed-rate duration matching the length of time that you plan to
stay.
15 years vs. 30 years
• Monthly payments on a 30-year are lower than payments on a 15-year loan.
However, a 15-year mortgage loan typically has lower interest rate which reduce the
interest you pay over the life of the loan.
Down Payment
• Many lenders will insist on a 5% minimum down payment. By putting down a deposit
of at least 20%, you will not be needed to pay a further monthly premium for PMI
(private mortgage insurance). Generally, the more you set aside for the deposit, the
better rates you are likely to get from your lender.
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Calculating Principal and Interest
Calculating the expected monthly payments as well as the interest is
very important when picking out the best type of mortgage.
• Use an online mortgage payment calculator to get an
approximate amortization schedule for the mortgage
that you are currently servicing.
• It will show you the amount of interest you can pay as
well as estimated principal balances.
• These mortgage calculators even help you see the
impact that any principal prepayment will have on
you.
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Is a mortgage right for me?
A mortgage is really a big deal and before you apply for one, it is very important that you think critically. Asking
yourself the following questions will not only inform you if a mortgage is the best thing for you but it will also
ensure that you do not struggle with your mortgage repayments:
• What is your income?
• Lenders want to know your annual income
• What is your age?
• You can only qualify if your remaining work years can cover the period of the mortgage.
• How much in outstanding loans do you have at the moment?
• If you have other loans, it will have an impact on how much money you can borrow and may
hamper your chances of getting a mortgage.
• What are your outgoings?
• Other than your loan repayments, lenders are also interested the financial commitments that
you may be having. If you have a lot of other financial commitments, a mortgage is probably
not the right thing for you.
• Have you been saving?
• In order to take out a mortgage, you need to have a deposit which can be up to 10% of the
house or property value
• Do you have a healthy credit history?
• If you have been paying your past loans on time, then a mortgage is probably a good thing for
you. But if you have struggled in the past, you could just be getting into more trouble.
Moreover lenders will examine your credit history and if it is not healthy, they are not likely to
advance you any loan.
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Mortgage repayment options
Interest and Loan
The most common way to repay a mortgage. Your regular repayment
will be composed of a fraction of the amount you borrowed plus any
interest accrued every month.
Interest Only
You will only pay for the interest on the loan you have borrowed, and it
usually translates to lower monthly repayments. But after the agreed
mortgage period elapses, you will still owe the full amount borrowed.
Therefore, you must find ways of paying it back.
Part and Part Mortgage
You will be able to pay back part interest-only as well as part repayment
every month.
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Costs associated with your mortgage
Booking Fee
This is sometimes known as application fee. You pay this fee upfront but
some lenders will allow the fee to be included in your mortgage balance.
Arrangement Fee
Also known as the Completion Fee, this is the setup fee for the mortgage
that must be paid prior to the start of the mortgage or might be included
in the mortgage balance.
Valuation Fee
Your mortgage lender will charge you this fee to commission a mortgage
valuation. A mortgage valuation refers to basic inspection of the property
that you want to buy. This fee is paid upfront when making your mortgage
application.
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Mortgage refinancing
Mortgage refinancing refers to replacing the original mortgage with a
new one. The purpose of refinancing is to enable you, the borrower, to
get a different as well as better terms and interest rates.
If you have a healthy credit history, this can be a very good way to
change a variable mortgage to a fixed one, hence obtaining lower
interest rate. On the other hand, if your credit history is not good or is
less than perfect, refinancing might be risky.
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