What Is a Mortgage? Things to Know Before Getting a Mortgage
For most people, buying a home is one of the biggest financial decisions they will make. Generally, first-time homebuyers are availing of a mortgage as their way to fulfilling their dream of being a homeowner without having all the cash upfront.
If you are thinking about homeownership, you might be wondering how to get started. Since property prices tend to rise every year, the financial aspect is the biggest concern when it comes to buying a home. For most people, buying a home is one of the biggest financial decisions they will make. Generally, first-time homebuyers are availing of a mortgage as their way to fulfilling their dream of being a homeowner without having all the cash upfront. So let us dive in and talk about a mortgage!
What is a mortgage? A Simple Definition of a Mortgage
Mortgage is a type of loan you can use to buy or refinance a home. It is a loan-based financing product for homebuyers for a certain period of time and with a certain interest. A mortgage would allow a person to own a home by simply paying a down payment and the remaining shortage is paid in instalments every month according to the predetermined time.
The 3 Types of Mortgage
As for the types of mortgage, here are three types of the most common mortgage in Indonesia that can be an option for anyone who is planning to buy a home.
- Subsidized mortgage
A mortgage that is provided by banks as part of the government program in order to facilitate homeownership for low-income earners. The advantages of a subsidized mortgage are the low-interest rate and the more affordable monthly instalments.
- Non-subsidized mortgage
The type of mortgage products provided by banks on terms that comply with general banking regulations and the interest rate is set by the bank that gives the mortgage. The interest rates between each bank could be different from one another. Additionally, this type of mortgage is free from VAT (Value-added tax).
- Sharia mortgage
Sharia mortgage is a home financing that follows the principles of Islamic religious law, which the loan interest does not apply. Instead, the Sharia mortgage applies a profit margin that is agreed upon at the beginning of the agreement. A number of banks, both state-owned and private banks, already have Sharia mortgage products.
But, there are several things you need to know and consider before you decide to apply for a mortgage.
Although you do not need to pay cash outright. You must first consider several things before deciding on buying a home through a mortgage. Here are some things to consider before applying for a mortgage:
Your income and financial stability
Carefully review your financial situation, because it is important to run your calculations to understand what you can afford especially when you decide to buy a home in long-term instalments. Other than that, it is also essential to decide how much you can afford for a down payment, as it will have an effect on your monthly payment.
Because, before you are able to pay off the home—technically, the bank still owns the home and will be officially owned by you when you have paid off the house payment to the bank. Therefore, an unstable financial situation will become a hardship to pay off the house in the future.
Consider the down payment
Consider how much you can pay for a down payment. It is the one factor that will most affect you down the road. The bigger the down payment, the smaller the monthly mortgage payment will be. Because this means that you are borrowing a smaller amount of money from the lender, and paying a higher down payment means that you may also have a low-interest rate. The decision is on one’s own, and you need to evaluate the pros and cons for yourself.
Do a property survey
A property survey is essential to find out important details about a house and the area it is situated in. Location plays an important role in the house’s value. It is vital to buy a house that fits your budget. In most cases, houses in suburban and outskirt areas tend to be less expensive compared to urban areas such as Jakarta.
Choosing the mortgage product
Once you have done a detailed property survey, the next step is to find the right mortgage products for you. This will help you work out your financial plan and funds—from down payments to instalments and loan interest.
Meanwhile, there are also several things to consider when choosing a mortgage product. Including the mortgage provider, facilities from interest rates, as well as various service benefits and assistance that you can use while your mortgage is running.
What are some requirements to apply for a mortgage?
As for requirements, prospective applicants need to be at least 21 years of age and a maximum of 50 years of age, have worked as a full-time employee for at least 2 years, and complete all the relevant documents. Including identity card (ID), marriage certificate (for those who are married), family certificate, and other documents as required by the bank or mortgage provider.
When we are talking about mortgages, there are a handful of considerations that we need to think about. With the property prices that keep on skyrocketing, mortgages help even homebuyers with a low income to own a home. Nowadays, many mortgage providers offer competitive mortgage payments at competitive interest rates. So this can make prospective homebuyers free to choose which mortgage program provides beneficial offers according to their financial situation.