3 things to know before applying for a mortgage

The leading tool for buying your home
18.11.2022 2 minuti di lettura

The mortgage is the fundamental tool to buy, to build or to renovate the house, if you do not have sufficient liquidity. Choosing the mortgage that best suits your financial situation is important. Read our guide to get all the information!

Types of mortgage
The mortgage is a medium-long term loan, by means of which the customer receives the requested amount and repays it over time with installments. The mortgage is secured by a lien on the property.

Establishing the type of mortgage and the most convenient duration are factors that depend both on the market and on your current situation, future intentions and possible unforeseen events. Another element that influences the type of mortgage, the installment and the duration is the interest rate, which is nothing more than the payment that is due to the lender and is a value expressed in percentage.

When you turn to the bank, or other financial operators, the financing alternatives they can offer are:

  • fixed-rate mortgage: the interest rate remains constant throughout the entire term of the mortgage. The disadvantage is that you cannot take advantage of rates reductions at certain times, instead the advantage is that you know the overall expense you will face;
  • variable rate mortgage: the interest rate may change over time depending on fluctuations in the benchmark, set by money and financial markets;
  • hybrid-rate mortgage: the interest rate may change from fixed to variable, and vice versa, at preset intervals or under certain conditions laid down in the contract;
  • spilt - rate mortgage: the mortgage includes a fixed rate and a variable rate, recommended for those who prefer a middle ground solution and want to take advantage of the advantages of both options;
  • subsidized mortgage: in this case, public bodies can contribute to the payment of interest. 

The elapsed of the mortgage and the amortization schedule
The duration of the mortgage averages between 5 and 30 years and is stable based on the monthly amount that you want and can pay. 
For example, the higher the installment, the lower the amount due for interest and the shorter the course of the mortgage. The other way round, the lower the installments, the higher the interest payable and the longer the duration of the mortgage. 

To handle debt repayment over a stable period of time it is recommended to adopt a mortgage amortization plan that is the debt repayment program. The plan define the amount of the mortgage, the date of conclusion, the frequency of the installments, the criteria that determine the amount and the outstanding balance.

The cost of the mortgage
In addition to interest rate, other elements that you have to calculate are:

  • taxes: is withheld directly by the bank, so the sum that the customer receives is lower than the amount granted. The percentage depends on whether the property is a first home or not. There may be a tax to be paid for the registration of the lien or other formalities;
  • tax breaks: there may be tax concessions that can be obtained, such as those for the purchase of the first home;
  • arrangement fee, valuation fee and notary fees;
  • the cost of the insurance premium: useful to cover any damage to the property and risks related to the customer that could compromise the repayment of the loan;
  • arrears charge: if the instalment is not paid or if payment is delayed;
  • servicing fee.

Accessing a mortgage to purchase your home is an important step, and one of life’s most important investments. For this reason, you need to be informed and think carefully about the pros and cons of each choice, because this will condition several years. 
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