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Don't Make Your Parents' Mistakes: Nine Tips for Applying for Mortgage Credit
The most important expense in a couple's life must be faced with an eye to the mistakes of the past. The generation that was 30 to 40 years old between the 90s and the 2000s, got caught up in a galaxy of mortgages. And then it suffered.
Now their children are toying with the idea of getting married and taking out a mortgage to buy a flat. These are the behaviors to avoid, and they led us to the biggest financial crisis in memory:
- 1. Beware of variable loans. The generation that got into debt in the 80s, asked for fixed interest loans because that's what they had and because they protected themselves from inflation. On the other hand, the generation of the 90s and 2000 (your parents) went to the variable loans because there was no inflation. But it's a trap. Inflation can return as it did just before the crisis broke out. Fixed-rate loans guarantee the same repayments against all odds.
- 2. The monthly payment should not exceed 40% of your income. No matter how much the bank lends you, you have to control your expenses and contingencies. It is better to live on rent than to be stuck on a credit that takes 50% and up to 60% of your monthly income. Don't get carried away with economic optimism. By the way, thanks to your age you can get credit for up to 25 or 30 years. That will lower your monthly payment.
- 3. No multi-currency credit. It was one of the biggest screw-ups of that generation. Taking out mortgages based on Japanese yen, for example. If the yen weakened, it was very good for the change because it lowered your monthly payment. But do you control the yen? The opposite happened: the yen was strengthened so that monthly payments of 900 euros became 2,000 euros and more. A wreck.
- 4. Don't entrap your family. Many young people from the previous generation used their parents and grandparents as guarantors. When the crisis came, there was no way to pay back the credit because they were unemployed. So, the parents had to take care of the house or the apartment. Or the grandparents, mortgaged their pension to pay for your whim. You take out your mortgage.
- 5. Read the contract to the end. The previous generation took out loans without looking at contracts. That if mortgages clip, that if mortgages with clause ground, that if mortgages subsidized... Ask an expert or go to the associations of consumption. Don't sign if you're not 100% sure.
- 6. Don't sell your soul to the bank. Many banks require certain conditions to grant the credit. Payroll accounts, take out home insurance, and other products... Some are logical like the payroll account. But you don't have to take out their home insurance or accept a certain credit card. You negotiate each condition hard, to avoid fees above all. Ask for everything in writing.
- 7. Squeeze out the subsidies to the end. The autonomous communities, the town halls and now the State periodically grant aid for the purchase of housing. Find out about the advantages and conditions. Visit all the offices of the State, and surf the Internet so you don't miss a thing. And see what you can deduct.
- 8. Don't buy the house of your dreams (yet). The first house should not be the one of your dreams, but the one that will help you to set up your family. It's cheaper, and the mortgage will be cheaper. It may be a little small when you start having kids, but it will be the house you can afford. Later on you will be able to access a better house.
- 9. Take out a good life insurance policy. When you're young, life insurance is very cheap. For 180 euros a year (for each one), you can buy insurance. In case of an accident that makes you unable to work or if one of you dies, the insurance will cover your mortgage and, who knows, even your children's studies. Take advantage of them because your parents forgot about that 'detail.
The last piece of advice that experts give to anyone thinking about taking out a mortgage is to analyse the market through online comparisons such as the idealist one and look for the best loan according to your work and financial situation.
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