Do you want to take out a home loan, or do you want to know more about this to ensure proper preparation? We have listed the most important elements for you, so that you know exactly what to expect and that you will not be faced with any surprises. For example, what about the amount of the home loan and how does this affect the interest rate you pay? What does a small increase or decrease in the interest rate mean, and on the basis of this is it interesting to make it variable? What is the advantage of a fixed interest rate and how does the term affect the total expenses or expenses per month? We have listed the information related to the home loan for you, so that you know exactly what to expect.
Of course you can make a simulation of the home loan online, to find out what you have to take into account, or what you can borrow as much as possible. In addition, determine the interest rate that you can go for, or how it affects the cost of the home loan.
Amount of the home loan
When you plan on getting a home loan, it is certainly wise to look carefully at how much money you want to borrow in the end. This may seem obvious, but you can partly use your own money. For example, do you have a house in mind, worth $ 175,000? In that case, you can use a home loan worth this amount, or you can, for example, choose to bring in $ 25,000 of your own money. The latter is preferable, because it ensures, among other things, that the bank runs less risk, so that the interest rate will be lower. So it is true that how much you can borrow for your home loan clearly depends on your own situation or financially.
In addition, this way you run less risk yourself. Would the value of the house suddenly drop and you have not had the opportunity to make repayments? If you have to sell the house smoothly for any reason, you can get into financial difficulties, because the sale of the house will not yield enough. Therefore, take a good look at the amount of the home loan in relation to the value of the home and make a good decision to avoid taking on too much debt. Of course you can also use a bridging loan if this applies to you.
Term of the home loan
Secondly, think carefully about the term of the home loan. It is customary to take out a home loan for a period of 20 years. Both a long and a short term have advantages, which we are happy to list for you.
Do you opt for the shortest possible term for the home loan? Then you ensure that you can keep the total costs as low as possible. The longer you use the home loan, the higher the total interest burden will increase. From this point of view, a home loan with a term of only 5 years is the best option, since the costs are then considerably lower than with a term of 20 years.
On the other hand, a longer term of the home loan ensures that you can reduce the costs per month. You take 20 years to make the repayments and repay the loan amount. A term of 5 years with a home loan of $ 175,000 provides repayments of an average of $ 35,000 per year, while the average repayment after a term of 20 years falls to $ 8,750 per year. As a result, the longer term of the home loan is often much more profitable, although interest costs will increase further.
Interest rate of the home loan
When taking out a home loan, pay close attention to the interest rate that you pay by comparing several banks and mortgage lenders. You are dealing with a very large amount that you want to borrow, so that even 0.1% more or less interest can be worth checking out. For example, do you pay 4% interest on the $ 175,000 mortgage? Then this means an annual (gross) interest expense of $ 7,000. Would interest be 0.1% higher? Then this means an extra cost of $ 175 per year, which means that you pay almost $ 15 more per month. This shows that the interest rate of the home loan can very quickly lead to additional costs, or an attractive discount.
Try to negotiate the interest rate by offering the bank as much security as possible. Can you contribute certain amounts yourself, or can you provide certainty about the payments you have to make in another way? Then this could possibly lead to a lower interest rate, as a result of which the costs of the home loan will decrease rapidly.
Fixed or variable interest rate
Finally, with a view to the home loan, you can consider a fixed or variable interest rate. A fixed interest rate provides the greatest degree of clarity, so there will be no uncertainty. Instead, you know where you stand at the beginning of the term and an interest rate rise or a fall cannot just throw a spanner in the works. Instead, you fix the interest rate and make sure that you can estimate the costs of the home loan in advance.
On the other hand, would you use a variable interest rate? Then you have the opportunity to take advantage of a falling interest rate with the home loan. Does the interest rate fall and do you have a variable interest rate? Then the costs per month decrease, so you can make more advantageous use of the house. Is interest on the other hand starting to rise? Keep in mind that the costs per month can increase, so you will have less monthly. Do you dare to take some risk with regard to the home loan, or do you want to ensure that the costs remain limited? Decide for yourself what you prefer, to be able to make a good choice and to take out home loan. In addition to the above information about the home loan, also read this article about the social loan.