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The Ins and Outs of Mortgages

Almost everyone who buys a home, whether it’s their first or a move to another property, will need to take out a loan, more commonly referred to as a mortgage, to cover the purchase price. A mortgage is a special type of loan that is issued to either a person, more than one person, or a business, usually called a commercial mortgage, in order to help with the cost of purchasing property. Since there are many different mortgage lenders in the market, it’s usually a good idea to explore what the various lenders have available and to compare their offers before you decide which mortgage to pursue.

One of the key features that a borrower will need to consider is the repayment terms. In the past, the majority of homeowners have taken out mortgages that had to be repaid over 25 years. As the cost of housing in the UK has risen borrowers might want to consider taking out a mortgage that is repaid over a longer term such as 30 or 40 years. By increasing the length of the mortgage repayment term, of a capital repayment loan they will be able to reduce the monthly cost of the loan repayments. In this way, the borrower might be able to afford their home or a more expensive one while still being able to meet the repayment terms. This does not apply to interest only mortgages.

Buyers must also explore whether their mortgage options have a variable rate of interest, whether discounted or standard, over the whole term or a fixed rate for an initial period. With a variable rate interest agreement, the interest rate may go up or down during the lifetime of the mortgage. With a fixed rate interest agreement, the interest rate will not change at all during the period of the `fix`. This has been commonly about two to three years in recent times. A homeowner might choose a variable interest rate mortgage loan without an initial fix in order to take advantage of low interest rates. Such rates might well rise and exceed the rate available during a fixed period. If repayments in the first couple of years of the mortgage are important to the borrower then a `fixed rate ` might be preferable.

When selecting a mortgage lender, a borrower has the options of a high street bank, a specialist mortgage lender, or a building society. Some specialists mortgage lenders may concentrate on providing mortgages to people who are self-employed or to people with impaired credit records.

Often, people with a less than perfect credit history can expect to pay higher interest rates on their mortgages. If the person’s record is exceptionally bad with CCJs, missed payments etc he or she may find it to be difficult or even impossible to find a mortgage lender willing to grant a loan. Occasionally the mortgage lender may be willing to grant a loan, but not the whole amount the borrower needs. In order to increase their chances of obtaining a mortgage that meets their requirements, some homeowners choose to use the services of a mortgage broker who will usually have a wider knowledge of the range of lenders available who may be willing to advance a higher loan...

Although a person with a good credit record might be able to obtain a mortgage that covers the total cost of the property, many mortgage lenders will offer a lower interest rate to homebuyers who can raise a significant deposit of their own. So it could be to a borrower’s advantage to defer their next purchase until they have saved up a deposit.

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