Real estate is perhaps one of the big-ticket items that you will have to pay in your lifetime. You can either pay it in cash or apply for a mortgage. Most of us fall into the latter category.
Mortgages are available through mortgage brokers or big banks. Your decision to use one or the other will depend on several factors. Below are some of the things you need to consider.
The most obvious factor to consider is of course if you have extra cash on your savings. Most of us would probably say to pay it in cash to save on interest expense on mortgage and to avail of further discounts on the property’s total contract price.
Currently, the interest rates offered by banks are not that high and you can definitely find an investment vehicle that would give you higher return than the current interest rate. This is what you call as leverage. An example of this is the stock market.
Instead of paying it in cash, you can opt to pay the highest amount of down payment to avail the most discount on the total contract price. This totally makes sense especially if you’re buying a pre-selling real estate. Since the property is still under construction, your money will just sleep and won’t earn any income if you paid it in cash. This is actually what I did in the pre-selling condo unit which I bought from DMCI. In my case, I paid 50 percent down payment at zero percent interest until the turnover of the condo on year 2020. That payment scheme allowed me to save 10% on the total contract price of the unit. That’s the maximum discount already offered by DMCI if you won’t pay it in cash.
COMPARE MORTGAGE RATES
A bank or mortgage broker that persuades you that theirs is the best deal that you can get may not always be acting in your best interests. Always check your options.
Nowadays, there are aggregator sites that compare rates from their different partner banks. These are one stop shops to compare the different interest rates of loans offered by banks and avail of it right there and then.
Before availing a real estate mortgage, visit these sites and compare the rate given by your bank against mortgages offered by other banks in the site. You should avail the one with the lowest interest rate and the most convenient terms.
SAVE ON MRI
Mortgage Redemption Insurance or MRI is one of the mandatory requirements that you need to avail and pay when you availed a real estate mortgage. This pays your mortgage in case you die.
In order to save on this, use your existing life insurance and assign the bank as your beneficiary. Make sure though that the sum insured in your life insurance policy is higher than the amount of loan you are availing in the bank. At the end of the mortgage, when you already paid it in full, you can change your beneficiaries back to original.
Mortgages rank among the most important long-term financial obligations you’re likely to make in your lifetime. Think of the lifespan of a mortgage loan – 5 years – 20 years. Most of us would avail 10 to 15 years. The interest repayments alone are substantial enough to make you stand up and take notice.
Never accept the first deal that comes your way. Shop around and ensure that you’re getting the best possible terms at all times. Never sign on the dotted line until you have considered a host of reputable low-cost mortgage options.