The term mortgage is defined as a loan used to buy a property. Secured against the property you want to buy, this loan is one of the biggest financial commitments. If one cannot make repayments then the property may get repossessed by the mortgage provider. Thus, it becomes important to protect and repay the mortgage.
How to pay for mortgage?
There are two ways to pay for your mortgage – repayment and interest only. Both are paid on a monthly basis. The former includes both – the capital as well as the interest while the later includes payment of interest only. ?
Repayment mortgage: Repayment method includes payment of capital and interest over a pre decided period of time. This time could be stretched over years and depends solely on your circumstances and financial stability.
Normally, one pays a high interest rate to cover the interest levied on the mortgage amount at a faster pace. Once you continue with repayments, the provider will start reducing the mortgage amount until it is fully paid.
Interest only mortgage: In this case, you pay interest amount on a monthly basis up until a specified period of time. So, the actual debt would not be covered in this case. These are a high risk to the lenders and they often ask for various proofs to assure that the original debt would be paid. These are commonly seen when the plan is for the but-to-let mortgages, in which the borrower sells the property in the future to pay for the loan.
What are the legal considerations for getting a mortgage loan?
The lenders will consider many factors before granting a mortgage to an applicant. The main considerations include loan-to-value ratio, age, current salary, credit history and repayment method. In April 2014, the FCA (Financial Conduct Authority) introduced more stringent checks and tests for the borrowers.
Borrowers need to prove that they have the required financial structure to repay the mortgage loan over a couple of years. The lenders will demand documents that prove that borrower can afford repayments in the future and will meet the loan commitments without fail.
Deposits and loan to value ratio: It is the ratio of the amount of money financed by the lender to that of the borrower. Measured in terms of equity, this ratio is one of the biggest considerations while lending a mortgage loan. The higher this ratio, the more it is assumed riskier for the lender. If the ratio is high and you can’t pay the loan then it is a big loss for the lender. That is the reason why lenders offer attractive deals to people with the smallest loan-to-value ratio as it is safer for them too.
From where can one get the best mortgage advice?
You need to shop around places and on the web to find a deal that best suits you and is in correlation with the information provided by you. Mortgage advisers, brokers and lenders are not allowed to offer residential mortgage on an ‘information only’ basis. As per regulations from 2015, they need to keep your requirements in mind and talk you through all the available options.
FreePriceCompare offers you comparison service for mortgage loans. You can get to know the best and cheapest mortgage lender in the UK and select as per your own terms and budget. You can contact us on 02034757476.
How to choose a term length?
Deciding on the term length is another important aspect of applying for a mortgage. You can pay smaller repayments over a longer period of time but this will raise the overall interest and the repayment amount at the end.
By choosing shorter term, you will have to pay higher monthly repayment but this will result in paying less in total.
Most mortgage providers will consider you age. They will say no to a person who will pay repayments during their retired years.
One must choose an amount that gets easily paid. Do not stretch yourself to an extent where things become unbearable. This is very important as if you lack the ability of repayment then you will be at the risk of your property being repossessed by the lender. So, plan and invest wisely.
What are the different types of mortgages?
There are various types of mortgages that must be checked before buying one. Check out the following types below:
Standard Variable Rate (SVR) mortgage: In this case, repayment will fluctuate as per the standard variable rate of the lender. Most of the time, it is driven by the Bank of England’s base rate. This is one of the most expensive mortgage option but, it should not have any redemption penalty.
Fixed interest rate mortgage: In this case, you need to pay a fixed rate of interest over a period of time. The repayment amount will not be affected if the interest goes high or low. It is beneficial as it gives a clear picture of the amount of money that needs to be paid as repayment. Once the fixed rate ends, you will be switched to the lender’s variable interest rate.
Tracker rate mortgage: This is given at a variable rate and is set either above or below the Bank of England’s base rate or the standard variable rate of the lender. This one may prove costly as it carries early repayment charges.
There are many more types of mortgages which needs to be understood by an adviser or lender.Keep your eyes and ears open while choosing the right mortgage for yourself.
What about mortgage fees?
If you have found a mortgage with the lowest rate then it is good but, you have to keep in mind the various fees and charges associated with it. These charges will end up making for a big repayment value. The following fees have to be kept in mind:
Booking fee: Application fee or booking fee needs to be paid at the time of applying for the mortgage. This is a non-refundable amount and will not be returned back if the application gets rejected.
Arrangement fee: It is the charge taken by the lender for setting up and arranging the loan for you. It can be paid up front or can be added in the loan. If it’s added to the loan then you will be charged interest over that amount. This can be a big amount if you choose a large mortgage.
Valuation fee: The cost that the lender charges for a basic survey of the property you intend to buy. There are chances that the lender offers the survey without charging any cost but you must check the overall cost of the deal.
Lender’s legal fees:? Some of the lender’s may charge a few hundreds of pounds as their solicitor fees. Keep this amount in mind or you can opt for a fee free deal that covers the cost of lender’s legal tasks.
Homebuyer reports: If you have an older property or a one that is renovated then you need to pay for full structural survey often called the homebuyer’s report. This may charge more than a SVR but definitely gives valued information about the purchase.
Legal charges: The legal fees charged by the solicitor for all the legal paper work should also be considered. Known as conveyance, these fees include stamp duty and search fees.
Early repayment charges: There are fixed rates or cashback products available if you want to make early repayment or switch to another provider.
This way, you need to be prepared for various factors and charges while going for a mortgage loan. You must go for building insurance and mortgage life insurance to manage repayments in case of accidents to the property or to yourself.
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