Most people talk about mortgages as if they know all about them, but to many folks the whole subject is one of bafflement and mystery. If you know little or nothing about mortgages, this article might help.
A mortgage is a large loan for buying property. Unlike other loans, mortgage money cannot be spent on anything, but property. You can have a mortgage to buy your first home, a second or holiday home, or even a property to let out, so long as you can afford to make the repayments.
There are many different types of mortgages but they all slip into one of two teams. Either a repayment mortgage or an interest only mortgage. With a repayment mortgage, your monthly payments not only cover the interest, but also gradually pay off the loan itself. With an interest only mortgage, as the name suggests, you are only paying the interest back. Therefore, you will need to set aside further monies, either a savings policy, or an insurance policy, to build up a lump sum, to pay off the mortgage at the end of the term. That is your responsibility.
There are hundreds of different mortgages out there, all with different terms and clauses, and if you do your homework and investigate the main ones, it will pay you to do so. All lenders can set their own interest rates, and you will be amazed at how they can vary. Never settle for the first offer that comes along, until you have examined at least one alternative, several more if you can find the time. If you don't, you might end up paying a larger interest rate than you need to, and over 25 or even 30 years, that could mean paying tens of thousands more in interest than you need.
Mortgages are usually set over 25 years, though increasingly they can be for shorter periods. Mortgages used to the province of the young, but no longer. I recently came across an eighty-year-old man who took out a 25-year mortgage. There is nothing like being optimistic!
Most lenders will lend you three times your annual pay, so if you earn 50,000 a year, you can expect to borrow 150,000 at the least. You don't have to take up the full amount if you have a sizeable deposit. I have seen some lenders stepping that figure up to four times annual pay in recent months, to help the lower paid deal with increasing house prices. If you have a partner, you can expect to borrow between two and a half to three times your combined pay.
You will find it much easier to be granted a mortgage if you have a clean credit record. You will not necessarily be barred from obtaining a mortgage if you have bad credit points, but you will certainly cut down the number of lenders open to you. You will also end up paying a higher rate of interest, and thus a higher monthly payment, so if you are ever tempted to run up bad debts, or default on loans, perhaps in your younger or student days, then don't. That bad smell will follow you round for years, and you will definitely pay for it through the nose in the longer term.
Start out as you mean to go along. Always honour your debts, and pay your commitments promptly and fully. If you do that, you will never have a problem obtaining a mortgage to buy the dream house you and your partner have fallen in love with.
One popular modern mortgage is the flexible mortgage. This means you can overpay, underpay, or even take payment holidays from your mortgage repayments if you choose. The main point of taking out a flexible mortgage is that you can regularly overpay your mortgage, and in so doing pay it off much quicker, saving you thousands in interest payments. But this type of mortgage also gives you the flexibility to reduce your monthly outgoings should the need arise, perhaps through starting or expanding the family, or when you are switching jobs, or even between jobs. With a flexible mortgage, you can do that, without fear of repossession.
And what is repossession? It is exactly what it says. If you fail to make the payments on your mortgage, or any other loans secured on the property, then you run the risk of the lender repossessing the property. In effect, they will seize your house, and invite you to walk away. They will need a court order to do so, but they will get an order if you renege on paying. Not a pleasant prospect, everyone would agree, but that is the ultimate and obvious result if you take out a mortgage, and then neglect making the payments. In short, never miss a mortgage payment if you can possibly avoid it, and even then, before you do, contact the lender and explain your situation. They will not be happy bunnies, but they will be a lot happier that you spoke to them, rather than ignored the problem in the hope that it might disappear. It never does.
To find the best mortgage to suit you and your pocket, consult a qualified mortgage advisor, but never be railroaded into paying fees, large or otherwise, until you know what you are getting for your money. You would not be the first person to pay a large fee on the promise of a hefty forthcoming mortgage, only to discover it never arrives, and your fee is non-refundable.
Mortgages can be shark-infested waters. Deal with reputable companies, and qualified advisors, and you should not go far wrong. Don't be shy to ask people about their qualifications. Qualified people are never backward in showing you their certificates and degrees. Buying a house is the largest purchase you will ever make. Doing your homework on every point will pay you big dividends.
Here follows the statutory legal warning: Your home may be repossessed if you do not keep up repayments on your mortgage.
It stands to reason. Mortgage lenders are not charities. Hope this helps in some small way. Best of luck.
David Carter’s latest published work is SPLAM! Successful Property Letting And Management. Splam! contains over 240 pages of hints and tips on how to start your own property business on a limited budget, and how to successfully let residential property. You can view actual extracts of the book at http://www.splam.co.uk and order a download or a hard copy at this site, or you can go direct to the publishers at http://www.lulu.com/dc He also runs a holiday cottage website where you can access over 7,000 holiday cottages, apartments and villas worldwide at http://www.pebblebeachmedia.co.uk Don’t you deserve a holiday this year? Well of course you do! You can contact David on any matter, any time, at supalife@aol.com
