Your Guide to Buying a Mortgaged Property

A mortgage loan, or simply mortgage, is used by property buyers to raise funds to purchase real estate. Aternatively, a mortgage can also be used by existing property owners to raise funds for any purpose. Buyers can thus exercise this mortgage while reserving the right to keep possession of the property belonging to another person until the debt owned by the other person is discharged.

In fact, a mortgage is an agreement that makes your home loan possible although the terms mortgage and home loans are often used interchangeably. A mortgage is a written document that gives your lender the right to foreclose your home in case of default. Since real estate is usually very expensive, almost all over the world, most buyers pay 20% down payment while they borrow the remaining 80%. To reduce their risk while lending, NBFCs require you to use the property you are buying as collateral, and that undertaking is your mortgage.

MORTGAGE INTEREST RATE

Most buyers prefer to pay a higher mortgage rate to avoid paying closing costs, even while some homeowners are fixated on obtaining the lowest mortgage loan interest rate even if it means taking money out of their pockets at the time of financing, most buyers, however, prefer to pay a higher mortgage rate to avoid paying closing costs. This category of home buyers prefer to pay one-time fee instead of lower interest rate to save money over the long term. This tactic works if you plan to stay with the mortgage for a reasonable period of time. You will be given the opportunity to buy down your rate when you apply for a home loan,. This requires paying mortgage discount points which are a form of prepaid interest.

Mortgage rates are more sensitive to market fluctuations than most other loans. Also known as Mortgage Backed Securities (MBS), these pools of loans are bonds sold to investors whose prices are determined by market conditions. As the prices of MBSs fluctuate in the market, so do mortgage interest rates.

DISCOUNT POINTS

Discount points lower the amount of interest that mortgage borrowers have to pay on subsequent payments and they are a type of prepaid interest or fees. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers the loan’s interest rate by one-eighth to one-quarter of a percent. Discount points are tax deductible only for the year in which they were paid.

PRIME CONCERN IS LOCATION

One of the prime concerns while buying a property is location. Most new properties are located in the outskirts of the city or on the periphery. This could be a cause for concern as it could be far from your place of work or your child’s school. That is why it might be a better idea to buy an existing built-up home or a resale home which is located at a reasonable location inside the city. Further, essential civic infrastructure like banks, hospitals, markets are located at a reasonable distance from a resale property. You can move inside the flat immediately after buying and do not have to wait for construction to be over.

BASIC DOCUMENTS REQUIRED

You need to have a sale deed to ensure the seller is indeed the owner of the house. You should also get copies of the stamp duty and property tax papers. This process is best explained by an example. Suppose you buy a house of Rs. 70 lakh and the seller has an outstanding loan of Rs. 30 lakh on it. Then there are three different ways in which you can buy the house. One is using your own funds; second is taking a loan from the same NBFC/institution from where the seller took the loan,and third is taking the loan from another NBFC. In all three cases, you can use the Home Loan EMI Calculator or the mortgage calculator to arrive at the EMI and the interest rate for the mortgage loan.

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