An Introduction to Mortgages

The mortgage can be described as a loan that is used to purchase land or property. The loan is repaid with interest over between 35 and 35 years. A mortgage is one of the largest and most costly financial product that people purchase, therefore it is crucial to know the terms and choose the best mortgage for your needs. Furthermore, since the mortgage is secured by the home, in case you fail to pay the repayments on your mortgage, your lender may take possession of the property. Make the wrong decision and even when you don’t forfeit the property, you could be paying hundreds of thousands of pounds more than what you are entitled to pay in fees and interest.

Different types of mortgages

Fixed rate

If you have an interest-only fixed rate mortgage the interest rate you pay is fixed over a time period that is usually between two three, five, or 10 years. This means that your monthly payment will be the same throughout that time regardless of whether you pay a higher Bank of England base rate changes. These mortgages are most suitable to those who are willing to pay a little more in order to have the assurance of knowing precisely what they’ll be paying every month.

Variable rate

If you have an adjustable rate mortgage, your interest rate may fluctuate between a decrease and an increase each month, in accordance with external influences. There are two types of mortgages:

Tracker

They are backed by the interest rate which is ‘tracked either that of the Bank of England base rate or the lender’s regular interest rates. If you select a mortgage which tracks your base interest rate your interest as well as the amount you have to pay each month, can change depending on whether it is the case that Bank of England changes the base rate. For instance an interest rate on a tracker loan could be 1% higher than the base rate. When the rate of base is 0.5 percent, you’ll be paying 1.5 percent. If the base rate increases to 2.5%, you’ll pay 2.5 percent. If your mortgage is tied to the standard rate set by your lender which is referred to as the standard variable rate’, or SVR, what you pay depends on the lender’s preferences. In general, SVRs move up and down with base rates, and the lender can alter the rate at any time it feels is appropriate.

Discount

This is a variable-rate mortgage that is based on the lender’s SVR, however some percent lower. As an example that the discount could be 1% off of the SVR. If your lender’s SVR is 3.3%, you’ll pay 2percent. The variable-rate mortgage might be the best option for you if you’d like to lower your monthly payments and are willing to risk the possibility of your monthly payments rising when the interest rate you’re monitoring moves upwards.

Offset

The offset mortgage lets you link to your savings account or sometimes your current account too with your mortgage, so that it only pays interest for the amount that is different. For example, if you have a mortgage worth PS100,000 with savings between PS20,000 and PS1,000, you’d only have to pay interest on the 79,000 on your mortgage, if you connected the accounts to each other. Offset mortgages are great for people with a significant amount of savings . The best aspect of offset loans is you pay lower interest rates (as you would have if you paid off large portions from your loan) however, you are able to access your savings at any time you want, giving you the most benefits of both. Offset mortgages are the best option for those who has an abundance of savings or self-employed employees who have saved up enough money to pay their taxes every year. If you’re one of them, an offset mortgage could help you save more in the form of interest that is not paid for your loan than what you would get from the traditional savings account.

Buy-to-Let

Buy-to lease (BTL) mortgages Northern Ireland have been made for landlords looking to purchase a property for rent to tenants. They cost more than standard residential mortgages, due to the fact that the banks view rental properties as more risky. However, when you plan to let a property with a mortgage, you need the BTL mortgage. BTL mortgages are essentially exactly like conventional mortgages, like you can select either a fixed or variable interest rate. However, the amount you can borrow will be contingent on the rental potential of the property and not your own personal earnings. Additionally, BTL mortgages generally require an additional amount of deposit than other kinds of mortgages.

Important Mortgage Phrases You Need to Be aware of

First-Time Buyers

If you’ve never owned a home previously, you’re first-time buyers (FTB). A lot of lenders offer special offers for FTBs to get you get on the ladder of property (and transform you into an ongoing customer). Therefore, keep an eye out for mortgages that are specifically designed for FTBs.

Remortgaging

This happens the case when you get an additional mortgage to repay your existing loan. The primary reason you take out a new mortgage is to save cash. As an example, you may be paying a fixed rate for two years rate and you notice your payments increase (normally at the SVR of the lender) when the fixed time expires. If this happens, you may think about remortgaging in order to obtain a lower rate. Many people also remortgage in order to take out an additional amount so they are able to pay debts or to fund home improvement.

Porting

This is the process of transferring the mortgage you have on one location to another, allowing the homeowner to move without having to remortgage. Certain mortgages don’t permit the porting of mortgages, and if this is something you are considering, you might want to check your terms prior to you sign an mortgage.

Loan-To-Value (LTV)

You’ll hear this phrase often when seeking an mortgage. It is how much the bank will lend you in proportion to what your house is worth. For example, if your house is valued at PS200,000, and you’ve got an investment of PS40,000 and you want to borrow PS160,000, which is 80 percent of the value of your house. This means that your LTV is at 80%.

Mortgage Fees – How paying them can save you money

No matter what type of mortgage you decide to take You’re likely to be confronted with a significant arrangement fee that is around 1000 or higher. The fee can be paid in advance or added onto your mortgage. This means you’ll have to pay interest for it for at least 35 years. It is possible that you will also need to pay booking, legal and valuation charges. It is possible to get a better deal by paying the fee for a lower interest rate. Some lenders also offer free mortgages that appear appealing. In the end, you’re saving about 1,000 pounds without making the fee…aren’t you? In reality, mortgages that are fee-free typically be more expensive in terms of interest. Therefore, you could reduce your expenses by paying fees for lower interest rates. The likelihood that a mortgage with no fees will be cheaper for you will depend on the amount of your loan as well as the fees you could have to pay.

What are the requirements to obtain a mortgage

A Deposit

You will need to put aside an initial deposit in order to secure an mortgage. The larger the more. If you have 10% as a deposit then your mortgage will amount to 90 percent of the value of your property. This is known as value-added ratio (LTV). The less the LTV greater the rate of interest you’ll be eligible to receive.

A good credit history

A lender will look over your credit report when you apply for a loan. They’ll want to know how you’ve dealt with borrowing money previously and whether you have paid your bills punctually. The better your credit score, the less interest you are offered for your mortgage.

Prove that you can afford it.

Mortgage lenders will verify whether you are able to afford the mortgage. In order to determine this, they examine your earnings and expenses. If you’re employed, they’ll require your pay slips If you’re self-employed, they’ll need to look over your accounts for the past few years. They will then look over your financial obligations and determine how they’ll lend you.

A Home That Could Be Yours

The mortgage company may provide you with a’mortgage-in- principle’ prior to you having selected your dream home. However, they will not let you borrow until they’ve conducted an assessment of the property you’re planning to purchase. This is to verify that it’s as much as you want to spend on it, and to ensure they receive their money back if they were to have to taking possession of your house.

Paying off your mortgage

If you’re taking out a loan, you’ll sign terms to the lender of your mortgage. It specifies how long it takes to pay back the loan. It is usually 25 years. This is the typical mortgage term, however most lenders offer terms of as long as 35 years. If you’re able to repay the loan quicker then you may agree to with a shorter period. Your mortgage provider will inform the monthly installments you have to make in order to pay off the mortgage at the expiration of the period.

The mortgage repayments are split into two parts:

Capital The capital is the money you took out.

Interest is your payment to the lender.

Two ways that you can make a loan repayment:

Repayment – This is when you pay back a portion of the capital as well as some of the interest every month. In other words, at the time the term is over, you’ll be the owner of your home in full.

**Interest-only ** means that you pay the interest each month , meaning your payments will be lower. The main downside is the fact that, at conclusion of the loan, you’ll be liable for the loan you took. For this reason mortgage lenders will insist you have a plan in place – such as an investment – to repay the capital.Interest-only is also more expensive in the long-run as you are paying interest on the full loan for the entire length of the mortgage. Contrarily, with a repayment mortgage, the amount of interest that you are paying is decreasing when you pay back the capital.

If you are in arrears with the mortgage payment you make monthly This is referred to in the industry as “arrears”. If you don’t settle the arrears as requested by your mortgage lender, they could be the case that they will eventually take possession of your home.