For many people, a mortgage is practically the only opportunity to acquire their own home. True, her reputation is not very favorable. People are afraid that the bank will take away their apartment or that due to some problems they will have to switch to bread and water to make payments.
This can really happen to those who decide to take out a loan quickly and thoughtlessly, without preparation. Here are 11 questions to think about that will help you figure out how successful such a financial project will be for you.
How official and stable is your income?
The first of these parameters is important for the approval of the loan and the amount that the bank will be willing to lend you. Obviously, if you have a large salary, you can qualify for a larger loan and will be more willing to issue it. However, if you receive money in an envelope, this does not mean that you will be denied a mortgage. It's just that the conditions are usually less favorable. For example, a bank may increase the interest rate.
However, income stability is even more important. Mortgage is a long-term project. It will drag on for at least years, if not decades. All this time, in order to avoid problems, you must give the bank a certain amount every month. And it’s good to know now whether you can do it. To understand, you will have to ask yourself many clarifying questions, for example:
- How valuable are you? If there are layoffs in the company tomorrow, how many will you be fired?
- Is your company involved in an important and in-demand business? Is it stable or on the verge of liquidation? Profitable or about to declare bankruptcy?
- If you lose your job, how quickly will you find a new one?
- How many sources of income do you have? If one goes missing, will there be enough others to cover life and mortgage?
- If you receive money in an envelope, what is the risk that your employer will one day start paying you less or stop paying you altogether?
Ideally, you work in a stable company where you are loved and paid well. At the same time, you have an excellent reputation, so if there are problems at your old place, you will quickly be taken to a new one. You also have several sources of income, and more than one person works in the family.
If you find a weak spot somewhere, this is not a reason to despair. Rather, it gives you the opportunity to calculate the risks in advance and lay down straws. Even if you are a seasonal freelancer whose pocket is either empty or full, not all is lost. It just takes a little more effort to take care of the financially slow months.
However, if you have a very irregular income and you risk being unemployed at any time, it is better to wait with a mortgage for now.
Even any spare couple of thousand deposited early will help you save.
Inna Churilova took out a mortgage for 7 years. Her monthly payment was about 20 thousand rubles. Over the entire period, she had to overpay the bank 448 thousand rubles, but in the end she repaid the loan in a year and paid only 84 thousand rubles.
“I immediately understood that I would pay ahead of schedule,” says Inna. “The first time I paid 30 thousand rubles, that is, I paid 10 thousand ahead of schedule and saw that I had interest savings of the same 10 thousand. Therefore, put any extra couple of thousand on the body of the debt.”
Let’s be honest, it’s easy to convince yourself to pay small amounts ahead of schedule; they won’t make a difference anyway, but “tearing away” a large amount is much more difficult. In this regard, another borrower, Natalya Bessonova, has her own trick. “Life hack “how to motivate yourself to pay large sums (for example, premiums) for a mortgage, and not for new shoes”: I calculate in my mind that with 100,000 money paid in advance, the monthly payment will decrease by about 1.5 thousand, which will be per year 18 thousand, almost a fifth of the amount. This fact warms me,” she shares.
How much money do you need per month to live?
It is better to calculate the budget for several scenarios: from basic survival to a completely tolerable existence. You will need the amounts to understand what monthly payment size is right for you. To prevent the mortgage from turning into torture, after paying the loan fee, you should have part of your salary remaining, which is enough for a comfortable life.
Sometimes people are in a hurry and choose too high a monthly payment. In a sense, this is logical: the mortgage term becomes shorter, as does the overpayment. But what kind of life will it be if you constantly have to barely make ends meet? You can tighten your belt for a year, not 10.
The amount needed to live is not taken from the ceiling. You will have to record expenses for some time in order to understand how things are in reality. Moreover, this should be a long period of observation. Because expenses can vary significantly from month to month. For example, in April you have to pay taxes, in November you have to pay car insurance, and in winter due to heating, utilities are more expensive than in summer. Without understanding your spending patterns, you are not very ready for a mortgage.
The hypothesis regarding a comfortable payment amount can always be tested. Just set aside that amount and evaluate what it’s like for you without it. At the same time, you will increase your down payment.
Bank rate
As already mentioned, when choosing a bank when applying for a mortgage loan for a property, always study the interest rates. Of course, everyone understands that it is more profitable to take out a loan at the minimum bank rate. However, many do not fully realize how important even the minimal difference in various bank offers is.
For example, 13% and 13.5% - it would seem that the difference between the rates is insignificant. Just half a percent! However, it should be borne in mind that in the context that the borrower takes out a mortgage for a long time, and even just a small difference in interest rates over a long loan period will allow you to receive a significant overpayment.
You need to carry out insurance yourself
Currently, insurance is a mandatory condition when drawing up a mortgage agreement. With various insurance companies, insurance will cost you on average from 0.5 to 1% of the total amount. In this case, funds for insurance are paid when applying for a loan immediately for the first year, and then at the end of each subsequent year. By independently choosing an insurance organization, the borrower can choose insurance at the optimal price.
As already mentioned, as a rule, the bank has its own list of recommended insurance companies with which it cooperates. Or you can apply directly through a credit institution. The buyer of real estate will be required to fill out a certain form; usually, no difficulties arise at this stage of applying for a mortgage.
Insurance costs vary greatly between insurance companies. Therefore, do not rush to take it from a bank-affiliated insurance company; you can probably easily find a better offer. Considering that the policyholder takes out a mortgage loan for a long time, and annually he will have to pay the amount of the insurance premium to the insurer, this can save a considerable amount.
"Pitfalls" of mortgages
After concluding a mortgage, the borrower becomes bound by a contractual relationship with the bank. A pledge is created on the mortgaged property in favor of the bank, i.e. The borrower's right of ownership is limited. The buyer of the apartment will not be able to sell it, donate it, or dispose of it in any other way until he pays off the mortgage.
Mortgage repayments should be handled responsibly and avoid delays, based on the payment schedule issued by the bank. Otherwise, the bank will be able to resort to liability measures, such as fines, penalties, and, in extreme cases, foreclosure of real estate through the court. (And the fact that this home is the only place of residence will not prevent the court from doing so).
If problems arise when repaying a mortgage (for example, dismissal from a job, bankruptcy of a business), you can obtain a procedure for refinancing the loan in another bank, as well as installment payments.
We hope that from this material you were able to get the answer to the question: how to take out a mortgage correctly. Follow the above tips and you will be able to get a mortgage on comfortable and favorable terms.
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Do you have a down payment?
Typically banks want you to put down at least 10-20% of the cost of the apartment. Accordingly, the amount of living space you can qualify for depends on the amount you have. For example, if you have 200 thousand, you will choose from apartments worth up to 2 million, if 500 - up to 5 million.
But it's not just about choice. The more of your own money you can deposit, the less you will have to borrow from the bank. And this logically affects the amount of the overpayment and the loan term. So the more money you have, the more prepared you are for a mortgage.
The trick to early repayment
Now imagine that you suddenly became rich by 1.5 million (won the lottery, sold your dacha, car, garage, received an inheritance).
Great, you think. Just enough to repay half of the loan.
You go to the bank to make an early payment.
Bankovskaya Marinka offers two methods to choose from:
- Reduce the loan term.
- Reduce your monthly payment.
You are lost in thought. What to choose?
Wanting to help, Marinka unobtrusively offers to reduce the payment amount.
- Imagine how good it is. You paid 30 thousand, but you will only pay 15. And the money saved will be yours. Every month.
“She’s probably right,” you think. Thirty a month is too hard for me. And you agree.
Now pay attention again!
By contributing 1.5 million, the amount of debt was halved. The monthly payment has been halved. But…..the write-off of the principal debt will also occur 2 times slower.
From 3 million in the first year the debt would be reduced by 20 thousand. Well, from 1.5 to ten.
And we have absolutely the same scheme as in the previous version. For the first 20 years you will work at almost one percent.
The bank will, of course, lose money if the payment is made beyond the schedule. But he will still fuck you to the fullest.
The main thing is that the scheme itself will work according to the same principle: almost the entire payment amount will go to pay interest, and a very small part of it will reduce the principal debt.
Some credit institutions, including Sberbank, do not even have the option to reduce the term for early payments in their repayment rules. Only monthly loan payment.
Can't guess why?
And many people who take out a loan are not even interested in it. And in the future they somehow do not focus their attention on the impossibility of reducing the term. Well no and no. We will reduce the payment amount for early repayment.
How to profitably pay off your mortgage early
What kind of apartment can you afford?
It’s good if desires coincide with reality, but this does not always happen. And it’s not a matter of cost at all - it’s logical that you’re looking at housing that’s affordable. But there are also criteria that matter.
For example, large footage is not only an advantage, but also a disadvantage. Payments for housing maintenance and heating are calculated by square meters. And this can increase the amount quite dramatically. Are you ready to pay 10 thousand rubles for housing and communal services from September to May for an apartment of 80 square meters and whether you can afford it is the question. It is possible that it is worth taking a little closer look at housing.
We should also talk about the maintenance of housing depending on its “eliteness”. Buying an apartment is half the battle. But monthly deductions for cleaning, concierge and similar expenses can vary significantly from home to home. All this must be taken into account so as not to encounter unexpected expenses that will force you to go into austerity mode.
Do you have an emergency fund?
You may lose your job and it will take time to find the next one. However, the bank will expect payments from you on a monthly basis. In case of such a development of events and other force majeure, it is good to have an untouchable stash.
Ideally, this should be an amount that is enough for three months of payments and normal life. In practice, it’s worth having at least two payments in reserve plus money for food and utilities to catch up. This is the minimum set; without it, getting into a mortgage is extremely risky.
What bonuses and benefits from the state can you claim?
In some cases, it is possible to ease the mortgage burden through government support. For example, every Russian has the right to take advantage of a tax deduction for the purchase of an apartment and interest on a housing loan. The maximum amount that can be returned is 260 and 390 thousand, respectively.
But that's not all. There is also a reduced rate and payments to pay off mortgages for large families, the Young Family program and other amenities. Know your options before taking out a loan.
How does a mortgage work or the fairy tale about eternal credit?
First, let's imagine this situation.
In a certain kingdom lived Ivan, a man of limited intelligence. That's what everyone called him - Ivan the Fool.
He met Vasilisa the Beautiful. They fell in love and decided to get married.
There was an urgent need to build new mansions for his young wife. Gifts, travel to foreign countries, have a wedding and throw a huge feast.
To do this you will need money - 100 gold. And right away.
Ivan the Fool goes to Kashchei the Immortal and asks to lend him the required amount.
“Okay,” says Kashchei. At least now you can withdraw the required amount. At a small percentage. Let's say only 12% per annum.
- This is fine! I agree, answers Ivan the Fool.
Kashchei: I will come to you every month and you will give me 1 gold piece. Can you handle it?
Ivan happily agrees. The payment is small. You don't need to give away all the money from your salary. And it will remain for life. And here he can immediately pick up a bag of gold and all his problems will be solved.
Got my 100 gold. He played a wedding and built a house. He lives for his own pleasure. Every month he gives Kashchei a coin.
8 years pass.
Ivan goes to Kashchei and asks - how much do I still have left to pay?
Kashchei answers: 100 gold.
Well, how can that be? I have been regularly paying by coin for 8 years and have already paid 96 gold over the entire period. And still owes 100 coins.
Absolutely right!
We agreed that you receive money at 12% per annum. And from 100 gold coins there are 12 coins per year. And you, Ivan, were just paying them. If you gave me 2 coins every month, you would have already paid it off.
“Why didn’t you tell me about this right away,” asks Ivan the Fool.
- What for? You asked to borrow money yourself. I offered to pay you a coin a month. “You agreed,” Kashchei answered.
Here something begins to clear up for Ivan and he understands that at this rate he will be forced to pay at least 20-30 years, at least 100, but he will still owe the initial amount of 100 gold
He will pay all his life, his children and grandchildren will pay for him, but they will never be able to pay off the debt.
Do you have a chance to repay the loan early?
This is something worth striving for: early repayment of the loan will allow you to save on overpayments. You can hope to win the lottery, but the surest way to do this is to increase your income.
Increasing earnings is not a matter of chance, but the result of hard work. Therefore, it’s time to think about what you are doing for this: working on your personal brand, studying, upgrading your skills. If you draw up a strategy in advance, nothing bad will happen, but good things just might.
Where do you see yourself in five years?
If the previous questions were somehow related to finance, now it’s time to add a little philosophical speculation. At the beginning, we already said that a mortgage is a long-term project. Of course, theoretically, the apartment can be sold at any time using collateral.
But why not ask yourself a simple question now, who and where you want to be in five years. Do you see yourself in this city, in this apartment, together with the person with whom you are getting involved in a loan?
A mortgage comes with its own obligations. For example, you may stay in a job you don't like because you have debt, or endure something else that makes you unhappy. Therefore, you should think hard about whether you really want to start this epic. If not, you are not ready for a mortgage. But if a loan takes you one step closer to your dream, you will succeed.
