Which is The Right Mortgage For You?
Financing a house purchase presents its own problems. Using a cheap fixed mortgage is a great way to do it. It is pretty stress free to know that you won’t have to worry about rates rises or market crashes any more. This stability lets you just get on with your life easily and stress free. But there still are some barriers you need to cross if you are applying for the cheapest fixed mortgage.
One of these barriers concerns two things. The first is the value of the house that you are trying to buy. If it is over valued, then a lender will hesitate to finance such carelessness. Secondly what is the level of equity that will be left in the property?
Put simply if you buy a house for $100,000 and need to borrow $50,000 then your free equity is $50k. This is your wriggle room and the bank’s safety net if you default and they have to sell the house from under you.
This is very important at the moment since the banking meltdown. Many properties were over financed and the values inflated. When the crash came, the values crashed and many people were left with high payments and a devalued property, leaving negative equity.
The better you equity is then the better your chances of getting a cheap fixed mortgage.
Not only should this equity balance concern the bank, but you should also be careful of what you take on, cheap fixed mortgage or not. Remember this is your home and you should seek to protect it and you as best as possible. You don’t want to be left with a house you can’t sell and a mortgage you can’t pay. This would be the worst of both worlds. Also getting a better cheap fixed mortgage will lower your repayments and give you breathing space if financially challenged in the future.