One of the greatest purchases that you are likely to venture in during your entire lifetime is buying a home. This is a major financial investment and a clear understanding of the same is key. It is very crucial that you get an affordable mortgage, bearing in mind that poor choices can eventually leave you bankrupt.
How to choose the right mortgage for you in the UK
A mortgage is a type of a loan usually taken in order to buy property or land. Most of them usually run for about 25 years but this period can be shorter or longer depending on the company offering it. The value of your home is the loan security and in case you are unable to repay the loan, the company takes possession of the property and sells it off to regain their money. It is therefore very important to ensure that keeping up with the repayments will not be stressful for you. Remember that it is not just the repayment money you need to keep in mind, but there is also money for house maintenance, insurance and other routine costs. The lender usually goes through your income, checks any debts, bills and money spent on personal expenses and then uses this to determine how likely you are to repay their money. If they do not find you credible, then they might deny you the mortgage.
Deciding whether to apply for a mortgage from a bank or a broker
You may opt to apply for a mortgage directly from a bank or go through mortgage brokers, who take you through the available mortgages in the market then advice you on the best offer. However, the best starting place for beginners is to check out websites that compare mortgages, to get an idea of the best company. Some of these websites include: Money Supermarket, Money saving expert and money facts. Check out as many websites as possible because all will give you different results.
During the mortgage application, the broker will ask you some questions such as the mortgage type you need, how long you would want it to last and how appropriate it is to you. This will help the broker to determine the type of mortgage suitable for you and they will advise you on the same. If you are not a mortgage expert, it is advisable that that you take the advice given. Sometimes you can choose a mortgage without getting any advice, this is the execution-only mortgage and it is offered on very rare cases. You should be sure of what you want to buy, how much you intend to borrow, the interest rates and the mortgage length. You will then be required to put it in writing that you actually never received any mortgage advice. In this case, it will be hard for you to make any complaint in case the mortgage turns out not to have been the best for you.
You are usually expected to pay some money when buying property. This money will eventually add up to the property’s total cost. The amount of the deposit is what determines the interest of your mortgage loan. The percentage of money you pay in deposit is the part of the property that you out rightly own. The remaining percentage is what is secured against the loan, and it is known as the loan to value (LTV). The lower the amount secured under mortgage, the lower the mortgage interest rates. This is because the lender does not give much money and is hence risking less.
Once you get the loan, capital, you have two repayment options to choose from. You may decide to use the repayment method, whereby every month you pay back part of the capital plus the interest gained. You may also use the interest-only basis, where you pay only the interest gained per month, then at the end of the mortgage period you pay back the original capital. However, this is a risky payment option and unless you are sure you will manage, it is advisable not to get into it. There are two types of interest rates: the fixed rates, where the rate doesn’t change for about five years no matter the market conditions. The other one is the variable rates where the rates may raise or lower as per the base rate of the bank of England.