Benefits and perils of a home loan mortgage – If you are a first time home buyer and are in a dilemma whether your mortgage can make your life easier or run it to hell,we will discuss the benefits and horrors you could face in your journey for the next 25 odd years.
Benefits of a home loan mortgage
Here i have highlighted some of the best and worst points to be kept in mind before applying for a mortgage.
Increases credit score
One of the best outcomes of your mortgage is the positive effect it has on your credit score.At first it may seem trivial to you,but over the course of time you will realize its significance.Imagine paying back debts every single month for the next 25 years or more.
Positive credit report
In addition to having a long lasting reflection on your credit score,your credit report that is an equally important aspect to your financial health and shows various aspects of credit and debt that you have accumulated over a short period of time.
Liquidity and flexibility
One of the unseen benefits of a mortgage is possibly one of the most important.By taking out a home loan,you give yourself more room and flexibility with spending money that can be used for household expenses and other payments.Remember, the idea of a mortgage is that the bank or financial institution has put its own money and bought the house “for you” and is allowing you to make small tiny incremental payments towards that purchase.If calculated correctly,you are paying just a mere fraction in monthly payments all thanks to your lender.
You will be a homeowner
Once your’e mortgage is approved,you can move into your new abode and call yourself a home owner.Believe it or not,this is a privilege.To own a piece of real estate in a top tier city in the any country is something to be proud of.There are millions who live their whole life in rental apartments which they can never call home.If you plan on starting a family,being a home owner should be given top priority.
The best investment
I recently read that 90% of the world’s millionaires invest in property.I am convinced that is true.Owning property is better than gold,it is a solid investment with high returns,appreciates well,and most importantly is shelter over your head.By the time you are done with your mortgage,the value of your real estate would have quadrupled!!
Perils of a mortgage
Whilst taking out your home loan,its essential to negotiate interest rates,fees,charges,penalties,tenure,down payment and other essential pay outs that you may be likely to face over the period of your mortgage term.If done without prior due diligence it can cause havoc to your financial and personal life.
The worst part of a mortgage is the long terms associated with it.Ofcourse you may think that it is for the better,owing to the fact that the longer the term,the lesser will be your monthly payout.Which is true to a certain extent,after a few years into your mortgage,you will soon come to realize that this loan is like a noose around your neck.
Think of it – what if you lose your job,and it takes a few months to find another one,you still will be liable to make your payments and that can be extremely stressful.
You just cannot get out of it,without foreclosing,the payments MUST go,whether you are employed or not,whether you have had 4 square meals a day or not. – ELSE you will end up paying steep penalties for missed payments.Not only that,a missed payment will be recorded in your credit history,it might not cause significant damage if done once,but more than that can cause a negative impact on your score.
DEcreased net monthly income
Once you sign up for your home loan,you have to come to terms with the fact that s much as one third of your monthly income will go towards repayment of this loan.You need to get your self mentally prepared for that eventuality.Also you need to remember that this will go one for the next 25 years atleast,unless you win the lottery and pay off your debt earlier.
Due to this your net monthly income also gets cut down and you need to replan your finances accordingly.Biting off a huge chunk every month will make you curtail expenditure.
Depreciation of value of property
All property values do not appreciate.Just like cars,some properties that are not bought in high net neighbourhoods stagnate in value or in some cases shed some their value.Since the monthly payments stay the same in fixed rate of interest loans,over a long period of time,the amount you pay every month does not lose as much of its value as compared to the worth of the purchasing power it holds.Also,the since the worth of the property over a long period of time might not appreciate as much as it should.