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Mortgages

If you’ve ever thought about buying a home, then you’ve also thought about mortgages at some point.

The word mortgage brings out a feeling of dread in many people. The worry of endless repayments, of going without, of scrimping and saving for 30 years until it’s paid off.

These days there are so many different types of mortgage services available from many different mortgage lenders – how do you choose which one is the best?

There really is no such thing as the ‘best’ mortgage. There is only the mortgage best-suited to your individual needs, your personal budget and your own circumstances.

Just because one particular loan type worked for a friend of yours doesn’t mean it will work for you because no one else is in your unique situation. This is why it’s important to consider your own goals before sourcing a home loan so it suits what you’re aiming for.

Remember there is much more to think about than just your mortgage rates. Some loans offer more freedom and features than others. Some allow you to pay just the interest only and others allow you to keep redrawing excess funds up to the agreed credit limit for the term of the loan.

But do you know what a mortgage really is?

Derived from the French word mort meaning dead and gage meaning pledge, people tend to think of mortgages as the debt on their homes, but banks and lenders can offer mortgages over other forms of security too.

Mortgages can be offered over security like land, cars, business equipment, boats, commercial buildings and even stocks and shares. They tend to be given slightly different names, but they’re still effectively mortgages held over a saleable security in return for a loan from the lender.

The primary type of residential mortgage is the amortised principle and interest mortgage. This is where each repayment is made up of an interest portion and a portion that is paid off the principle of the loan.

Amortisation is the system used by mortgage lenders to calculate the decreasing portion of your loan. Your minimum repayment schedule is worked out using an ‘amortisation calculator’ so that the bank knows it will still receive the interest payments it needs to make a profit at the same time as seeing your debt decrease with each payment you make.

Keep in mind that mortgage brokers charge interest on any outstanding balance you have at the end of every day – even though they only show the total monthly interest figure at the end of the month on your statement.

This means it’s possible to reduce the interest you pay by either making your payments more frequently or by paying more than the minimum amount due.

Finding the right mortgage for you is just the beginning. Knowing how your mortgage operates is the first step in taking control of such a massive debt. Once you understand how it works, how each payment is structured and what your lender expects of you, it’s time to put that knowledge to good use and apply that knowledge to paying off your debt!

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