Tips: How to Select Mortgage Term and Interest Rate

When taking out a mortgage, consumers are faced with a choice: how long a period of time do they want the mortgage repayments to last?  This is very important to calculate, as mismanagement can store up future problems such as mortgage arrears.

 

Make sure that the length and repayment terms are realistic for you, your future finances and your circumstances.  If you do not have the financial ability to repay a home mortgage load with a maturity of (for example) 5 years, choose a longer term – 10, 15 years etc.

 

If you take a home loan from a conventional bank, there is always some risk, because the loan interest rate can change at any time, depending on the condition of the national economy. For example, in 2006 the mortgage rate jumped from 12% to 17%, and then decreased to 13% -15%. Indonesia had one of the highest rates ever in 1998, in which the mortgage interest rate shot up to over 30%.

 

Unexpected rate hikes like this can be devastating when managing your repayments as part of your budget. So think wisely, if you would be able to deal with this situation in the future or not, especially if you intend to take a home loan tenure to 15 years.

 

If the national economy is stable where the interest rates are not as fluctuating as the turmoil in 1998, some mortgage offers in co-operation with banks provide mortgage facilities with fixed interest of 10% in the first year, a fixed interest rate of 9% in the second year and so on, where interest rates follow the trend of the market interest rate (floating).