Often times people wonder if they can afford something, an apartment in the range of 150 Million Uganda Shillings for example, a concern we do understand. However, it all comes down to the mode of payment. Let’s say you are a young corporate couple looking for a place of your own and your salaries are not enough for an installment payment plan of one year. Can you buy an apartment? The answer is yes, and mortgage financing is a perfect go to, where you essentially have a bank or building society help you buy the property and you pay back, in small installments over a longer period of time.
What Is A Mortgage?
Simply stated, a mortgage is a loan obtained to purchase a home or property that secures the promise to pay the debt.
It can also be defined as a legal agreement by which a bank or a building society lends money at an interest in exchange for taking a title of the debtor’s property until the debt is fully paid.
A mortgage consists of a principle and interest. The principle is the amount left to pay after you have made payments against your loan balance while the interest is the rate on your mortgage that you will pay the lender in exchange for the money borrowed.
What Are The Different Types Of Mortgages?
Fixed Rate Mortgage; this is the type whose payment remains the same for the life of the mortgage including the interest rate. This normally has a life span of 15-30 years.
Advantages
It is predictable therefore you can tell what amount you will be paying in the period and know when you will finish.
The term of your loan depends on the nature of your business and the purpose for which you need the loan.
Adjustable Rate Mortgages; under this type of mortgage the payments increase or decrease regularly based on current market rates.
Advantages
The rates on adjustable mortgages often times reflect short-term interest rates that are usually lower than the long-term rates of fixed mortgages.
When interest rates reduce, the homeowner has an advantage as opposed to if rates are fixed.
Can One Pay Off their mortgage ahead of schedule?
Let us look at this scenario. You take a mortgage at a time when you can afford a particular payment per month but after 3 months, you get a salary raise and can somehow pay more money. Can you pay this money? The answer is yes.
Extra payment before the term of your loan reduces on the term as well as the interest as long as you communicate to the lender so that it can be affected to your principle.
NB: If you are agreeing to a mortgage, always ensure that there is the provision for making extra payment in case of better cash flow on your side.
In our next article on Mortgage financing we shall be looking at the determinants of a mortgage and who actually qualifies for a mortgage.
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