Real estate is seldom bought in cash. The vast majority are bought with a little down payment and mortgage loans on the balance.
A mortgage loan is a form of secured financing; That is, the lender gives you the necessary financing and in return promises you the property as collateral.
In a mortgage loan, there are two very important documents that you commit to:
Note - it is a promise to repay the loan in a timely manner
Mortgage or deed of trust - is a promise to insure the loan with the real estate in question in case the borrower does not meet their loan obligations.
A mortgage creates a lien on the property, which gives the lender the right to exclude the property in question.
A loan default occurs when you can not repay the loan "on time" as stipulated in the contract. If that happens, the lender can exclude the mortgage and take over the property.
Interest rate and loan term
A home loan has two very important components that you need to know.
Interest rate - is the price of using the money of the lender and is applied to the balance of the principal. A lower interest rate means a cheaper use of the lender's money and should be good for you.
A term of the loan - the time it takes to pay the total amount borrowed. The term of the loan usually extends for a number of years.
These two factors mainly affect installment payments, which is usually on a monthly basis.
The amount shown on the monthly installment plan always remains constant. When you pay a loan, one portion goes to interest payment and another portion is going to pay the principal amount. In other words, the principal balance is reduced with every payment you make. And as a consequence, interest also shrinks as the loan matures. The first installments are mainly intended for interest payments, while subsequent installments mainly cover capital.
Payment and mortgage
Most lenders will not grant you a loan that is equivalent to the sale price of the property. In many cases, you will have to evaluate the property and you will be asked to place a down payment and loan the remaining balance of the appraised value.
The down payment is sometimes referred to as equity in the property.
The standard down payment is 20% of the appraised value of the property; 80% is your loan or the amount financed.
The more money you put as down payment, the lower your loan will be. And always remember that the loan has an interest.
Now comes the question: Which is better of the two?
A low payment and a big loan.
A big down payment and a small loan.
There are arguments that favor one over the other. It all depends on you and your circumstances. But sometimes, the lender will force you to take lower loans (with large down payment) to reduce your risk of lending you the money to finance your real estate purchase. That's pure business.
Mortgage loan
Depending on the property and where you are buying, Fund can give you a large amount of loan that is almost equal to the selling price of the property. But always take into account the maximum amount of the loan that the Pag-IBIG Fund can grant you. If you find the amount too small for the property you are considering, you may have to come up with a large down payment or you can use an alternative financial institution.
