Real Estate Tip – Read And Understand The Contract Before Signing
There has been a growing trend nowadays when it comes to home owners who buy houses and paying it on a monthly mortgage. They do not understand the contract quite fully. All they do is simply sign up the contract, give the money and viola! It’s all done.
The truth of the matter is there lays the difference. Yes, it is a fact that not all of us can afford to buy a house in cash. Most of us will be paying it through bank financing or other methods which is other than paying in cash. This is understandable. But there is a thin line of being out of debt (mortgage) and sinking in debt forever.
To give you a clear example, there are two kinds of interests on a house mortgage. The fix interest rate which is fix all through out the term and the floating interest rate that would change over a period of time. Say for instance, in a contract it will state that you will be paying the mortgage about $1,000 monthly, with a rate of 8% fixed. Or you will be paying $1,000 monthly on the first 2 years interest rate of 5% per annum, and $1,500 for the 3rd and 4th year at 7% per annum, etc.
As you can see with the floating interest, it would be best that you can pay the mortgage for the first 2 years in order not to pay much money in the long run. Since most of the cases, interest rates do increase as the years increase also. Another thing you must check also, the rate when you incur delay. Is it 4% or 8% for the defaulted monthly payment? So for $1,000, which you have defaulted, you have to add on $40 as part of the penalty. Therefore, you are paying a total of $1,040 which the $40 will be applied to the penalty not to the principal amount.
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