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Mortgage Matters Part 2: What’s in a Home Loan

There are three basic components to any mortgage: the home loan amount, interest rate, and loan term. You must understand these clearly before you start the home loan application process.Realestate.com.kh is here to help with a very simple guide.

The Loan Amount:
The loan amount is the principal amount that you want to borrow. Banks in Cambodia generally give a loan of up to 70% of the property value.If you combine the principal loan amount and the interest amount, you will then know the overall loan size. Most home loans are usually repaid via monthly installments. The repayment comprises two parts. One part is for the repayment of the principal amount; the other part is for the repayment of the interest.

The Interest Rate:
The interest rate is very important to understand! It is the percentage of annual interest that you have to pay on the total loan amount. It can be a fixed rate, a flexible rate, or a combination of both.

The Loan Term:
The loan term is the duration of time that you can take to completely repay the loan. Loans generally range from 15 to 30 years in Cambodia.

Why is my Bank property valuation different than my Agent Valuation?
It is confusing how valuations can differ depending on who does it, right? Your real estate agent will give you one valuation figure – and then your banks’ valuationarrives looking much different… Why?

The Bank Valuation:
If your home is or soon to be mortgaged, your lender/bank will need to value it.

This is necessary to give the lender/bank confidence that your asset offers sufficient security against the borrowed amount of money if, for any reason, you cannot pay your mortgage and the lender must sell the property to reclaim the debt.Hence, a bank valuation will usually be quite conservative, sometimes 10 to 20 percent less than the current selling prices of comparable homes in the same area.

The Selling Agent’s Valuation:
Real estate agents are commonly asked to assess the market value of your property, and many have some training in how to conduct proper appraisals of property. This agent valuation will often be used to decide who to engage to sell your home.

Before completing your valuation, the agent will typically inspect your home and research comparable sales in the local suburb or commune before producing a report and sale price estimation. This price guide is useful to a vendor when deciding what price to advertise.

However, the bank is unlikely to respect this valuation without a follow up appraisal by one of their valuation specialists, or an independent appraisals agent. Of course, the agent wants to help you get a good price – because this means more commission for them, and a happy customer – but these over-confident valuations can be dangerous to a lender.

If you want to read more of the best home loan, valuation and property finance advice, check out Realestate.com.kh today.

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