A mortgage involves a number of different fees and commissions, the sum of which may “shock” some. Although theoretically one of the cheapest forms of money lending, its total cost is often high.
Does it always have to be this way? Where and how to save with a loan for an apartment? In today’s article I will try to show you what to look for when planning a mortgage, and how to live comfortably with it later.
When choosing a mortgage offer
Attention should be paid to many elements: the purpose of the loan, the amount of own contribution, creditworthiness, etc. Theoretically, this information should be enough for us to choose the best mortgage in the current market situation.
Just what will you do after granting the loan? Do you have to pay back your loan and pay it back to the bank? Nothing similar just a little knowledge of economics and the basics of mathematics, and the cost of credit can be reduced by half.
I will show you some practical and proven tips that will help you save money and allow yourself to relax while paying the loan. Maybe you will go on your dream trip?
Savings and expenses plan
For today’s experiment we will need an example of the “Kowalski” family. Let’s assume that they have recently finished education, have been working full-time for two years and plan to buy their first “M”. Due to their age and seniority, they don’t have much savings. They have only saved USD 62,000, which is largely from their parents. The Loan and Credit intend to buy a ready flat from the developer for USD 350,000 and choose USD 60,000 to finish it. The cost of the entire investment will amount to USD 410,000. So they went to several banks and credit experts, read entries on mortgage forums, and then selected a few of the best mortgage offers for themselves.
They also made a spending plan:
- The Kowalscy intend to allocate USD 50,000 for their own contribution.
- Notary fees related to the transfer of ownership will amount to USD 3,000.
- The remaining amount of USD 9000 was reserved for bank charges.
The Loan and Credit already know that the best mortgage offers start with a 20% own contribution, and their savings allow a maximum investment of 12.2%. Therefore, they have basic loan offers.
Choosing a loan – basic criteria
Let’s assume that the Kowalscy have received positive credit decisions in all three banks and must decide to sign a contract with one of them. At this point the fun begins, of course we can make a table with the pros and cons of each loan offer, i.e. we compare which bank has:
- lowest initial costs (commission, real estate valuation insurance);
- lowest installment (remember that the bank may add insurance to the installment);
- lowest loan margin;
- lowest total loan cost;
- and so on….
A lot of variables, but most of us will pay attention mainly to three elements: commission for granting the loan, installment amount and total cost. As a result, we will limit ourselves to the bank’s proposal No. 1 or 2. No wonder, the difference in total cost between proposal No. 2 and 3 is as much as USD 43,656.00, and we will somehow swallow the commission of USD 6,840.00.
Let’s compare a loan for an apartment with the purchase of a new car. When buying a new car, do you intend to drive it for the next 30 years? Of course not! In a few years you will change them to a larger, more economical one or you will fulfill your dream and buy a convertible. A mortgage is like a car that needs to be changed over time. For what? For savings that will allow other plans to be implemented.