Mortgage basically means a legal agreement that offers you a loan at interest so that you can buy a property. The property remains the collateral or security against the loan that needs to be repaid. You can take this loan for a specific number of years that could be anything up to 25 and 35 years. You can repay by giving either the interest or both the interest and loan.
Different types of mortgages:
Depending upon the method of repayment, there are two main types of mortgages namely a repayment mortgage and an interest-only mortgage. You can also choose a combination of the two if that is convenient for you to repay.
Repayment mortgage – In a repayment mortgage, you repay the capital along with the interest making it a bigger sum of money to repay at the end of the month. This kind of repayment reduces the outstanding mortgage over time.
Interest-only mortgage – In this method, you repay just the interest at every month whilst finding an alternative method to pay the capital at the end of the mortgage period.
Benefits and drawbacks of repayment mortgages:
These are considered a low risk option as you repay the capital along with the interest at the end of the term. So, you finish off the whole loan in the pre-decided period for repayment.
You can also choose lump sum payments or can go for overpayments so as to reduce the total amount of interest and capital that needs to be paid. In this case, your monthly payments would be higher than what you would pay in an interest-only mortgage. In some cases you may need to pay an extra fee for overpaying your mortgage.
Benefits and drawbacks of interest-only mortgages:
In this case, as the monthly repayment amount is equal to the interest incurred over the loan on a monthly basis, you can manage to repay a considerably smaller amount and make things easy on your shoulders.
The drawback is that you need to find another way to pay the capital amount. This can be achieved by paying into a savings plan or investment. So, if you are sure that by the end of the term, you will have a strong savings or investment pot, then you can easily payoff the lump sum of capital. This way, things would become easy and convenient.
Different types of mortgage deals:
There are numerous mortgage deals available in the UK. The most popular of them are:
Variable rate mortgage: In this type of mortgage deal, you pay the Standard Variable interest Rate (SVR) as defined by the mortgage lender. Keep in mind that the SVR would be higher than the Bank of England’s base rate and will vary when the bank changes its interest rates. So, the amount you need to pay every month can easily vary.
Fixed rate mortgage: In this case, the interest rate is fixed for a pre-decided period which could be two, three or five years. This helps you to manage the monthly payments as you know how much needs to be given to the lender. The only loss is that even if the interest rate falls during this time, you still end up paying the fixed amount making repayment costlier for you when compared to others.
Tracker mortgages: In this case, the interest rate varies according to the Bank of England’s base rate. Normally, you pay a little higher interest than the bank rate for a pre-decided period of time or throughout the entire duration of the mortgage.
Things to consider while choosing a mortgage:
You should keep following things in mind when deciding on a mortgage:
The affordable amount that you can borrow
The term or period for which you can borrow this amount
The choice between a repayment or interest-only mortgage or a mix of both
You need to know the type of interest deals
Again, you need to know the period of the interest deals
You need to have know-how on the economic climate to gauge if the interest rates will go up or down.
You should also know about the flexibility options in case you run out of money and want to take a payment holiday. Also, if you have money then you should know the provisions and drawbacks of paying a lump sum.
One of the best ways to make things quick and affordable is by choosing first-time buyer mortgages.
Details of first-time buyer mortgage:
If you are a first time buyer then you can leverage special deals offered by lenders. Some lenders offer these easy and affordable deals to fresh graduates, teachers, nurses and people working in the public sector. Some of them waive off agreement fees and valuation fees to make the mortgage deal a cost effective one.
First time buyers would always be under the scrutiny of the lender and would be judged by their credit card report. Apart from the good credit score, you also need a reasonable amount of deposit in your account.
Mortgage options for buy-to-let:
These are one of its kinds of mortgages where you get a loan for property that you want to give on rent. The logic is that you use the rental income in paying the interest only repayment and pay off the capital amount when you eventually sell the property. Here in this case, you need a bigger deposit than usual mortgage deals.
What is remortgaging?
Remortgaging means you can switch the lender, provided you have a good credit score and good equity in your property. This may cost you a penalty or fine for a couple of months, if you are on fixed-rate deal. In addition, you may need money for the fees for valuation and agreement.
Mortgage options for people with bad credit score:
If you have a bad credit score then you are likely to pay higher interest rates considering the risk associated if the lender offers you the mortgage. It is advisable that you consult a specialist mortgage adviser and check your credit report before applying for a mortgage.
Fees and charges involved in taking UK mortgage:
Well, you need to arrange fees for legal transactions, mortgage valuation and mortgage booking to lock-up the deal. While you choose a fixed rate mortgage, you would be bound to pay an early repayment penalty in the event of repaying the loan before time. You need to pay exit fees if you switch the lender or even repay the mortgage before time.
These are the minimum things to be known by you if you plan to buy a mortgage. If you want to know more about mortgages and loans then you can check freepricecompare.com or you can easily contact our team of loan experts by calling us on 02034757476.
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