If you are about to take your first tentative steps onto the housing ladder, you must feel an exciting sense of anticipation. You are about to enter into a significant financial arrangement that will have a massive impact on your life for the up to the next quarter of a century. It is when you think about it that way that your start to feel butterflies in your stomach.
The world of mortgages can be confusing to those who have no knowledge of the subject. It is lucky you found this guide because you will learn about them in plain English and without any industry standard jargon. When you know a bit more about the subject, it will lower those anxious feelings and encourage you to buy that 3 bedroom detached bungalow in Salisbury that you love so much.
The amount of money you can borrow is the loan to value rate, and the lender states it as a percentage. If the property, for example, is worth one hundred thousand pounds and the bank will only lend you eighty thousand, the loan to value rate is eighty percent. That’s not so hard to understand, is it? Of course, that means that you will have to raise a twenty-percent deposit, which in this case is twenty-thousand pounds.
The deposit is the biggest obstacle to people who want to buy property. In the United Kingdom, there is a scheme in operation where you only need to find five-percent of the deposit and the government lend you the rest. You must start to repay that loan after five years.
A repayment mortgage is the best choice, in my opinion. You borrow the money and pay it back at a variable interest rate. During the early years, most of your monthly payments go towards interest and little toward the capital. As time passes, the pendulum swings the other way. During the second half of the mortgage, the capital reduces quickly.
You can also take out a fixed rate mortgage where the repayments will not go up or down with interest rates. Some people prefer this because it enables them to plan for the future in the knowledge that their payments will not change. It is a gamble because you could end up paying more than with a variable mortgage. On the other hand, you could pay less if rates peak.
Interest Only Mortgage
If you can demonstrate that you will be able to save up enough money to clear the loan when it is due, you could opt for an interest only option. Paying only the interest will make the monthly payments cheaper, but you must put money into a savings account too.
I think that the more complicated a loan is, the less attractive it is too. If you have a savings account with a lot of money in it, take a look at offset mortgages. If you deposit that sum with the mortgage lender, they do not charge interest on that amount of the capital they lend. It is a great way to hang on to your savings and still buy a house.
I advise you to run for the hills if a broker should broach the subject of endowment mortgages. They are a gamble with poor odds at best, and mis-selling in the nineteen-eighties caused a recent scandal when there was not enough in the pot to repay the capital.
Though the subject might seem daunting, the experts will help to find the right loan for you. Ask questions and take time to ponder your options. The solution is out there.