Home loans, what bankers don´t tell you

Home loans, what bankers don´t tell you

If you have never bought a house before and you are planning to do so now you are in need  of a very important asset, quality information. How to get this information and how to use it once you have it, is one of the purposes of this article. When we think of quality information we think of professionals, people who make a living from a certain business or trade. That is a great start if you are looking for useful information on home loans. It is very recommendable to speak with real estate agents, lawyers and other kinds of professionals before you choose or buy a house. The key is to choose your advisers well. A good tip is to always ask for advice from people who don´t have an interest in your final decision. This is often difficult or impossible. However you should always double check with a neutral authority that has no profit to make from your financial decision.

There are many questions you will want an answer for before you buy your home. For instance, how much can I afford to spend. The possibility of getting a loan has increased the spending power of buyers, allowing them to buy houses they could previously not afford. Home loans can extend for up to 30 or even 40 years allowing for low monthly payments for the most expensive of homes. However you must understand that lower monthly payments equate to much more expensive loans with more interest paid to the bank

This provides a trade off situation. The shorter your loan, the higher your EMI (equated monthly installments) will be. The higher the EMI (equated monthly installments) the shorter the loan and the lower the interest will be.

The question is how much equated monthly installments can you afford. This is often answered as a percentage of your monthly income. The opinion on what makes a ¨reasonable EMI varies. Some bankers will suggest never paying more than 40% of your monthly income. This means that if you earn a 1000$ the maximum you should pay for your mortgage should be 400$. The rest should be reserved for eating, transport, entertainment, saving and any other expense you might have. Of course this one size fits all advice may not be useful for you. You may have seasonal work, or a large percentage of your income might come in bonuses. For a more personalized analysis you should visit a financial adviser. I would personally suggest and even lower percentage of your monthly income to go towards mortgage payments, a 25-30% will allow you to have breathing room if things get difficult, which it seems like it will.

The  best choice is to choose a mortgage that can be fine tuned depending on your circumstances. It is always best to choose your mortgage in accordance with your current income as opposed to what you hope to earn in x amount of years. You can always change the EMI on your mortgage when your situation changes.