Mortgage Guide
The Step By Step Guide To Mortgages
Taking out a mortgage can feel like a daunting prospect and it is indeed a huge financial decision and in this climate it can be difficult to secure a mortgage and a home that are both affordable. Which is why you need to be sure of what to do to secure a mortgage.
Start With The Basics
Start by sorting out a budget and one that you can stick to. Sort out how much you can afford to repay each month and how much of a deposit you will have. Remember that the more of a deposit you have, the better the mortgage deal that you can secure. Although you need to decide which type of mortgage deal suits you, it is critical that you shop around to get the best mortgage deal that you possibly can.
As a starting point remember that there are various differences between all the deals on offer, so it will really save you money to shop around and compare various deals. You should also take into consideration all the fees that may be applicable.
Try downloading a mortgage loan calculator to sort out how much money you can afford to repay. It may also be worth getting a little financial advice. You can either consult an independent mortgage or financial advisor but remember that some deals may not be offered to independent advisors, you may have to go direct to the mortgage lender. However you should also compare the advice from the independent advisor with a mortgage calculator.
Think About The Details
You need to consider how you would like to repay the mortgage. Would you like to have fixed repayments or would you like to have variable repayments? Would you like to keep remortgaging so that you can continue to get the best deals on your mortgage? If you don’t want to keep remortgaging then you should go for a long term mortgage with one provider. But which type of mortgage will be right for you?
Variable rates:
As you would imagine this type of mortgage has variable interest rates which go up and down according to the base rate set by the Bank of England and your lender. If the interest rate drops then your mortgage repayments will drop but if they rise then your repayments will also rise.
Often this rate will be offered in the form of a tracker mortgage which tracks the base rate fixed by the Bank of England, (usually at a percentage point or two above the base rate set by the Bank of England).
However, it should be noted that even with a tracker the repayments can rise substantially if the interest rate rises sharply.There are various forms of variable rate mortgages including discounted or capped rate mortgages. The discount is set for a period of time and the capped rates means that interest rates will not rise above a pre-set ceiling.
Generally variable rates are very attractive to people who are certain that they will be able to afford any increase in the repayments.
Fixed Rate Mortgage
When you have a fixed rate mortgage then you will be paying the same amount of interest, usually for a period that is set at between 2, up to 5 years. Then when the set period finishes you will usually go back to the variable rate of interest known as the Standard Variable Rate. This is a good deal if you are worried that you will not be able to meet higher interest payments. However the bad news is that if you take out a fixed term mortgage and then interest rates drops, you will not be able to take advantage of the lower rates; you will continue to pay the fixed rate. These type of deals also tend to be more expensive than deals that involve discounted rates but they do bring peace of mind that you will always pay the same rate.
A Flexible Mortgage
As the name suggests, this is a deal that will allow you flexibility. You can pay more if and when you want to or you could even take a payment holiday. You can even pay off your mortgage a few years early which will save you a lot in interest. One thing to bear in mind is that you will not always be offered the lowest rate of interest on a flexible mortgage, since you are in effect paying for the flexibility. However, other mortgages also come with increasing flexibility , so again shop around. Generally though, this type of mortgage can be excellent for people who have a variable income, are self-employed or who want to pay off their mortgage as early as possible.
Current Account Mortgage
This type of mortgage pools together your debts and your savings into one account and then you manage your mortgage and finances through this account. In effect this type of mortgage helps you to keep the costs of your mortgage down.
Interest is generally calculated on a daily basis, which results in any money being paid into your account, such as your savings or salary, actually bringing down the total debt on your mortgage. This means you don’t have to pay as much interest.
Just be aware that these deals can be somewhat confusing initially and you do need to be disciplined to make sure that you don’t end up being too profligate and spending more than you have which will increase your home loan.
Similar to these type of mortgages are offset mortgages that will keep your accounts separate (but you don’t earn interest on your savings) but you will be able to offset your savings against your mortgage debt. These type of mortgages are excellent for people who are very financially aware and adept and who are keen to keep their money working for them at all times.
