The mortgage can be described as a term used to describe a long-term loan that is used to purchase land or a property. The loan will be repaid in addition to interest over between 35 and 35 years. A mortgage is one of the largest and most expensive financial product that people purchase, therefore it is crucial to know the terminology and select 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, the lender could take possession of your house. Make the wrong decision and even in the event that you don’t lose the property, you could be paying hundreds of thousands of pounds more than what you are entitled to pay in interest and fees.
Different types of mortgages
Fixed rate
When you take out an interest-only fixed rate mortgage the interest rate you pay is fixed for a specific time typically one three, five, or 10 years. This means that the monthly amount you pay will be exactly the same over the period regardless of whether you pay a higher Bank of England base rate fluctuates up or down. These mortgages Northern Ireland are most suitable for those who are willing to pay a little more to secure knowing precisely what they’ll be paying every month.
Variable rate
If you have a variable rate mortgage the interest rate could change from month to month, based on external influences. There are two types of mortgages:
Tracker
They have an interest that is ‘tracked either that of the Bank of England base rate or your lender’s normal interest rate. If you opt for a mortgage which tracks the rate of base, the interest rate as well as the amount you pay every month, will be affected 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 base rate. In the case of a base rate that is 0.5 percent, you’ll pay 1.5 percent. Therefore, if the base rate goes up to 2percent, you’ll be charged 2.5 percent. If your mortgage follows the standard rate of your lender also known as the’standard variable rate’, or SVR, the amount you pay depends on the lender’s discretion. In general, SVRs move up and down to the rate of base. However, the lender is able to alter the rate as it is deemed appropriate.
Discount
It is a variable rate mortgage that is based on the lender’s SVR but some percent lower. As an example that the discount could be 1% off of the SVR. Therefore, if your lender’s SVR is 3percent, you’ll be paying the equivalent of 2%. The variable-rate mortgage might be a good option if you wish to make a smaller payment now, but are willing to risk the possibility of your monthly payments increasing in the event that the interest rate you’re following moves upwards.
Offset
The offset mortgage lets you link to your savings account or sometimes your current account, too with your mortgage, so that there is no interest to pay on any difference. For instance, if have a mortgage worth PS100,000 as well as savings in PS20,000 or PS1,000 on your account you’d only have to pay interest on the 79,000 on your mortgage, if linked the accounts to each other. Offset mortgages are a great option for people with a significant amount of savings . The best benefit of offset mortgages is you are able to enjoy less interest costs (as you would have if you had paid off huge chunks from your loan) but you also have the ability to access your savings at any time you want, giving you the benefit of both. Offset mortgages are the best option for those who has a substantial amount of savings or self-employed people who accumulate funds to pay taxes every year. If you’re one of them, an offset mortgage can reduce the amount of the form of interest that is not paid for your loan than what you get from the traditional savings account.
Buy-to-Let
Purchase-to-Let (BTL) mortgages have been made for landlords looking to purchase a property to let to tenants. They cost more than regular residential mortgages due to the fact that the banks consider rental properties to be more risky. However, in the event that you intend to let a property with a mortgage, you must have an BTL mortgage. BTL mortgages are essentially exactly like regular mortgages. For instance, 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 income. Additionally, BTL mortgages generally require more of a security deposit than other types of mortgages.
Important Mortgage Phrases You Need to Be aware of
First-Time Buyers
If you’ve never lived in a house before, you’re first-time buyers (FTB). A lot of lenders offer special offers for FTBs to get to get you on the ladder of property (and make you a long-term client). Be on the look out for mortgages specifically for FTBs.
Remortgaging
This happens when you apply for an additional mortgage to repay the existing mortgage. The main reason people do this is to conserve cash. For instance, you could be on a fixed rate, and notice that your monthly payments increase (normally at the SVR of the lender) after the fixed term is over. In this case, you might think about remortgaging in order to obtain a lower rate. Many people also remortgage to get an additional amount so they could pay debts or make home improvement.
Porting
This involves transferring your loan from one home to another property, which allows you to relocate without having to remortgage. Some mortgages do not permit the porting of mortgages, and if this is something you’re thinking about, you should consider, you need to review your terms prior to you sign the mortgage.
Loan-To-Value (LTV)
It’s a topic that is discussed often when searching for an mortgage. It refers to how much the bank will lend you in a percentage of what your house is worth. If your home is valued at PS200,000 and you have 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
Whichever kind of mortgage you select You’re likely to be faced with an arrangement fee that is around 1,000 or so. The fee can be paid in advance or added onto the mortgage, meaning you’ll be paying interest for it at least 35 years. There is also the possibility of having to pay booking, legal and valuation charges. It is possible to reduce your expenses by paying fees to a lower interest rate. Some lenders also offer free mortgages that seem very appealing. You’re saving over 1,000 pounds without making the fee…aren’t you? In reality, mortgages that are fee-free generally offer higher rates of interest. This means that you can make money paying for a charge for lower interest. The likelihood that a mortgage with no fees is more affordable for you will depend on the amount of the loan as well as the charges you would otherwise have to pay.
What are the requirements to obtain a mortgage
A Deposit
You will need to put aside the money to obtain an mortgage. The more the more. If you have 10% as a deposit then your mortgage will amount to 90 percent of the property’s worth. This is referred to as the”loan-to-value” (LTV). The smaller the LTV is, the higher the rate of interest you’ll be eligible to receive.
A good credit history
A lender will examine your credit score when you apply for a loan. They’ll want to see how you’ve dealt with borrowing money in the past , and when you’ve paid bills punctually. The more credit-worthy you are, the lower the interest rate that are offered for your mortgage.
Evidence of Financial Affordability
Mortgage lenders will verify whether you are able to afford the mortgage. In order to do this, they will look at your income and expenditures. If you’re employed, they’ll require your pay slips If you’re self-employed, they’ll want to check your accounts for the past few years. Then , they’ll look over your financial obligations and determine how they can lend you.
A Possible Home
Your mortgage provider may offer a’mortgage in principle’ prior to you having decided on the home you want to live in. However, they will not let you borrow until they’ve completed an assessment of the property you’re planning to purchase. This is to ensure that the property is as much as you want to spend for it, and to ensure they receive their money back if they were to have to having to take possession of your home.
Paying off your mortgage
If you decide to take out a mortgage , you’ll have to agree on an agreement on a “term” in conjunction with your lender. This will determine how long it takes to repay the loan. It is usually 25 years. This is the most common mortgage term, however most lenders will allow terms between 35 and 35 years. If you are able to repay the loan quicker then you may agree to with a shorter period. The mortgage lender will inform the monthly installments you have to make in order to pay off the mortgage before the expiration of the period.
Two parts of mortgage repayments:
Capital The capital is the money you have borrowed.
Interest – This is the payment to the lender.
There’s two different ways that you can make a loan repayment:
Repayment – This is when you’ll pay off a portion of the capital as well as some of the interest every month. In other words, at the conclusion of the term you’ll own the property in full.
**Interest-only ** means you only pay the interest each month , meaning your payments will be lower. The main downside is the fact that, at conclusion of the period, you’ll have to repay the capital you borrowed. 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. With a repayment mortgage, the amount of interest you’re paying gradually decreases when you pay back the capital.
If you are in arrears with the mortgage payment you make monthly it’s known in the industry as “arrears”. If you fail to pay your arrears on time as directed by your mortgage lender, they could lead to the repossession of your home.
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