Buying a new home is fun and exciting and it is easy to get caught up in the thrill of searching for a new home. But it is important to understand a little about how mortgages work so that you can be an educated and informed house hunter. This could save you a lot of money down the road.
The Purchase Price Does Not Equal The Payback Price
When you purchase a home you will typically look within a certain price range. If you have done your homework and gotten pre-approved for a property loan then you will know exactly how much money you are qualified to borrow and how much money you can afford each month for a monthly repayment fee. But here is where this can get tricky. Say you can afford to pay $400,000 for a home. You look carefully at any houses that meet your needs and fits your criteria in that price range being careful not to go over your budget. Once you have found that perfect home you put down a nice down payment of $10,000 and sign all the paperwork. So now you owe the bank $390,000 right? Wrong. See here’s where it gets a bit tricky.
Your Mortgage Comes With A Cost
When you sign a mortgage agreement you are agreeing not only to pay back the original purchase price of the home that you bought. You are also agreeing to pay the bank, or mortgage company for allowing you to use their money. They are lending you the money to buy your home and you are agreeing to pay them back, with interest. So they are charging you to use their money. Every month a percentage is calculated and added to your monthly bill.
Property Options Australia
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Hi Sean,
Yes, it’s the interest that you’ll pay that will take the shine off your new home if you’re not careful. You really need to be financially responsible in order to pay your home off sooner and avoid paying huge amounts of interest.
I think it comes down to your priorities and what you really want to achieve.
Thankfully the mortgage is less than capital growth…most of the time…It is sort of like a forced savings pattern. I remember pointing out the total amount to the bank manager, pointing at the screen saying ‘is that what I have to pay for this house’and he said don’t worry about that just look at these monthly repayments. It was nearly triple the sale price! It does pay to lokk and be aware.