Guide to
Mortgages
A mortgage is a loan that is guaranteed by a
property. At its most simple that means, if you
can't pay back your loan the lender can force
you to sell your home so they can get their
money back.
Typically you can borrow three to three and a
half times your income, or two and a half to
three times the joint income of you and your
partner. These are known as income multiples.
The amount you can borrow will also depend on
the value of your home. Most lenders will allow
you to borrow up to 95% of the value of a
property. The loan rate is set by the lender,
and is called the standard variable rate (SVR).
Always shop around for the best rates. However
you must be careful to ensure you are comparing
like with like. To do this check the annual
percentage rate (APR) of the loan. You also need
to bear in mind that the interest payments in
respect of fixed rate mortgages can rise steeply
once the initial 'fixed' period ends. Therefore
your planning should always include the
possibility of sharp changes to future interest
payments.
There are two basic species of mortgage,
repayment and interest-only. The option you
choose is determined by the way you want to
repay your loan. Depending on the type of
mortgage you choose, your monthly repayments
will be made up of either capital and interest
or interest only.
A repayment mortgage requires you to pay back
both interest and loan capital, so at the end of
your mortgage period there is no money owing.
With a repayment mortgage you make the
repayments monthly for an agreed period (the
‘term') until you've paid back all the loan and
the interest. A typical term is initially 25
years, although it can be any amount of time –
the shorter the term the higher your monthly
payments but the less you'll pay overall.
An interest-only mortgage allows you to repay
just the interest on your loan, but you have to
take out an investment that will mature to pay
off the outstanding amount. With an interest
only mortgage you'll normally also have to pay
into another savings or investment plan that'll
hopefully pay off the loan at the end of the
term.
A lender might require you to take out life
insurance to pay off your mortgage should you
die. You can choose from basic ‘term assurance'
with low monthly payments that stop when your
mortgage term ends. You can also get insurance
to protect your income or just your mortgage
payments if you become ill or disabled, or lose
your job.
If you cannot meet your mortgage payments you
should contact your lender as soon as you
realise that you have a problem. Although your
mortgage is secured on your home, lenders see
repossession as the last resort: they stand to
make more money from your mortgage than the sale
of your home.
Lenders will work out a plan with you to
reduce your payments for a time or stop them
temporarily, and work out a new term for
your mortgage. It is wise to remember that
your home is at risk if you do not keep up
repayments on a mortgage or other loan
secured on it.
This article is the property of
www.1st-in-homeloans.com, which has been
offering home mortgage services since 2002. To
find out more visit
www.1st-in-homeloans.com
Add to my Favorites
