All About Mortgages – A Quick Guide – Loans
Buying a home is for most people the biggest deal we do in life. This often requires a mortgage loan that you receive from the bank.
There is a lot to keep track of – including how to find a mortgage and what conditions are good and not. We go through everything you need to know about borrowing money for your home.
A mortgage is the loan you take when you buy a villa or condominium
You can also take out a mortgage to finance a rebuild or renovation. Whether you are borrowing for new purchases or renovations, you are mortgaging your home so that the bank has a security if for some reason you could not pay off your loan. Mortgaging of the home is common and done so that the bank can give you better loan terms.
Bottom loan, top loan and cash deposit
What determines how much money you can borrow is the market value of the home and your ability to pay based on annual income. No matter how much the home’s purchase price eventually becomes, it can be good to know that you can borrow 85 percent of the home’s value from the bank, the remaining 15 percent you have to pay in a so-called cash deposit.
This is money that you need to save for yourself, or borrow from a bank or another lender. Borrowing to the cash deposit is more expensive than a mortgage because you do not mortgage the housing for this type of loan.
When you borrow between 50 and 70 percent of the value of the home, you pay one percent in amortization per year. This means that you have to repay one percent of the value of the home to the bank every year. If you borrow between 70 and 85 percent of the value of the property instead, the repayment is two percent per year. The loan range between 70 and 85 percent is what is called top loan, while everything below 70 percent is usually called bottom loan. The top loan usually has higher interest rates than the bottom loan.
Compare bank and loan application
Before you buy a home, you need to investigate how much money you can borrow from the bank. To find the right alternative for you, you need to compare different banks and what they offer for loan terms. These include interest rates, repayments and other borrowing costs. It can vary greatly between different banks and lenders. Once you find a bank you like and have confidence in, ask for a loan pledge that specifies how much money you can borrow. Make sure you get one before you start bidding on a house or apartment so you are sure you have the money to pay for your new home.
Different types of interest rates
The mortgage loan consists of two parts; interest and amortization. Simply explained, interest is the very cost of taking out a loan. The interest rate varies partly between different banks, but also depending on whether you want variable or fixed interest rates. The most common is fixed interest rates that you fix over a few years. This means that the interest cost will be the same year after year, which is a security for you who will pay as you get a quick overview of what the loan costs you each month. Variable interest rates change every three months and can go up or down depending on the market. In addition, there are different types of interest rates – including nominal and effective interest rates. The nominal interest rate is what the interest rate actually is, while the effective interest rate has also taken into account other borrowing costs such as setup and notification costs. When comparing different banks and mortgages, you need to look at the cost of the effective interest rate to get a fair picture of the actual loan cost.
Mortgages and legal deeds
In addition to the cost of the loan, there is usually a mortgage, proof that the bank has taken your home as collateral for the loan. If you buy a used home, there are usually mortgages on all or part of the amount, but you may need to supplement with more mortgages to cover the amount you borrow for. Check with the broker or seller if there are existing mortgages on the property and if so how much. When you buy a villa, you also need to apply for law enforcement, a certificate that you own the property. The cost of law enforcement is 1.5 per cent of the purchase price plus a one-off fee of SEK 825 to be paid to the state via the Land Survey. When you borrow money at the bank, they can help you with both a mortgage letter and law enforcement.
Count on operating costs
Once you find a home you want to buy – find out what the home’s operating costs look like. These are information that you can usually get through the broker. Make a budget and write down what costs you can expect each month. A guideline is about 30,000 – 40,000 per year for a house and between 1000 and 5000 for an apartment.