Good Reasons for Getting a Real-Estate Loan

If you are deciding whether to get any sort of loan then it is wise to compare the advantages and disadvantages. Often it can seem like there are a lot more disadvantages because of the risk and cost of a loan. However, there are often advantages as well and these can be quite high in number for a mortgage or real-estate loan.

Reduced cost of rent

Sometimes, when we take on a mortgage, we find that the monthly mortgage repayments are actually less than we were paying out in rent. This means that we might be able to save money. Of course, that will depend on what is included in the rent as sometimes electricity and water is included and you will have to pay for these on top of your mortgage repayments. You will also have additional insurance to pay which might mean that the mortgage is not cheaper.

However, even if it is a little more expensive when you are paying it, once you have repaid the mortgage it is likely that you will pay a lot less as you will only be having to pay for insurance and utilities and not for the loan repayments as well.

Before you decide whether to take out the mortgage it is worth calculating how much you might potentially save as this could help you decide whether the mortgage is a good idea or not.

Security

When you are renting, there is always a risk that the landlord may decide that they no longer want you at the property and they want to move you on. They may want to sell the property or they may want to live there themselves or if you have missed a few rent payments they may want to evict you for that reason. If you own your own property then you will be able to stay there as long as you wish as long as you are able to keep up with the mortgage repayments. Therefore, you and your family will have a secure place to stay with no worries about whether you landlord may decide to give you notice.

Freedom to renovate home

When you rent a property you will not have much freedom with regards to making changes in it. You will have to keep it looking very similar to how it did when you moved in. However, when you own a property you will be able to make changes to it. Tis can be anything from simple things such as updating the bathrooms and kitchen to extending the whole place. It can be great to be able to put your own stamp on a place or to be able to make changes so that it can always suit your needs. It means that if you extend the size of your family, but do not have enough space, you will not have to necessarily move. You may be able to convert a garage or attic to a bedroom or build an extension so that there will be room for you all. If you really love the area where you live and cannot afford a bigger property, this can be a cheaper option that can allow you to have to space that you need without moving.

Future investment

Although owning the house you live in is not quite an investment, it does mean that you will have money tied up in something which should be gaining in value. Property prices tend to rise over time and so the money that you have used to buy the property will also increase in value. As property values tend to increase faster than the rate of inflation or than interest rates it can mean that the money will be worth more put into a property than invested elsewhere. However, because you will always want somewhere to live, the money is not accessible unless you sell your property and move back into rental or if you release it using an equity loan. However, it is often used to pass on to children, which means that they have some inheritance either in the form of a home that they can live in or a property that they can sell so that they can have some extra money. This means that you are really investing for your children’s future rather than your own, but it can still be a nice feeling knowing that you will have something to pass on to them.

So, as you can see, there are many great reasons for buying a home. To do this many people will need to get a mortgage and there are obviously disadvantages in borrowing money like this. However, with a house purchase the advantages will often outweigh the disadvantages. You will need to normally save up for a deposit, which can be a significant chunk of money and so it may take some time to do this. You will also need to be confident that you are able to cover the regular repayments for the whole term of the loan which will be several or more decades. This can be a big commitment but it can be well worth it.

What is Good Debt?

You may have heard people differentiate between good and bad debt. It can be easy to guess what these might be, but when it comes to deciding whether the debt that you are taking on is good or bad, it can be more difficult.

What is good debt?

Good debt has to fulfil three different criteria. Firstly, the item that you are buying with the money needs to be worthwhile or help you to better yourself. This could therefore include university fees, buying a home or doing essential repairs. The loan also has to be affordable for you, which means that you can manage the repayments. It is important to compare different types of loans and different lenders to make sure that you sign up for the loan that suits your needs the best.

What is bad debt?

Bad debt is when we borrow money for something which will not really benefit our situation. This could be to buy clothes that we then do not wear, update our car when the previous one was perfectly fine or other luxury items like this. Also, if we take out any payday loan online that we cannot afford to repay this would be considered to be bad debt. Lastly, if we pick a loan that is expensive because we have not compared them, then this would also be considered to be bad debt.

How to tell if debt is good or bad

Knowing whether debt is good or bad is not always that easy. This is because although the criteria can be easily explained it is not always easy to know whether you loan fits in to them.

For example, if you need a car to get to a job, but you will be doing a three-month probation and do not know whether you will keep the job afterwards is it worth taking on a loan to pay for the car? It is a big risk as you may be left with a loan and no job after three months. But if you do not try to go for the job then another opportunity may not come up. It is very difficult here, to decide whether the loan is good or bad.

With the repayments, it may also be difficult. You will be able to look back at checking account statements to see whether you would have been able to repay the loan in the past but we cannot predict what will happen in the future. We are usually safe to assume that we will keep our job and still have the same income but this may not be the case. Some of us will have better job security than others and it will depend on the employment contract that we have. Even if we do have a secure job, there is always a chance that we may lose it and this can be difficult to predict at time. However, if we have more than one income in our household then that will provide a bigger likelihood that there will be money available for the repayments.

Comparing loans may not be as easy as we think. Often, we can use a comparison website but it important to realise that these do not include every lender. Some lenders do not appear on these at all and these can be cheaper so it is important to look at these as well. Some comparison sites will only include certain lenders because they will pay them the most commission if people click through their links to buy the loans. This means that they only have a limited selection. Even if we do look at extra places we may not be able to include all lenders because there are just so many. The best way to make sure that you have included all lenders in your comparison is to use a final advisor. However, they will charge for their service and if the loan is just a small one it may cost more to pay them, than they will save you in finding you the perfect loan.

So, as you can see it can be quite difficult to tell whether a loan is good or bad. You need to think about your own personal circumstances and even then it can be tricky. However, if you spend the time doing the research then you have a better chance of finding a good loan that you will be able to repay for a purpose that is worthwhile. It will take time to do all of this research but it will be worth it. When you get the loan you can be confident that you have found the best possible one for you and that you will be able to repay it. You can even use this method to compare loans every so often to decide whether to switch to a different ender to save money.