What is a mortgage?
A mortgage is a loan taken out to buy property or land. They can run for up to 40 years – known as the ‘term’ although are usually over a shorter period. The loan is ‘secured’ against the value of your home until it is paid off. You will be charged interest on the money you borrow. The higher the mortgage rate, the more you pay in interest. The quicker you pay off your mortgage, the less interest you pay.
When budgeting for a mortgage, you’ll need to consider a realistic budget that includes the purchase price of the property and all the associated costs and fees.
Mortgage advice from WPP Financial Services, Rochester, Medway, Kent, could help with this.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Buy to let mortgages are not regulated by the Financial Conduct Authority.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
The deposit is usually at least 5% of a property’s value. The more deposit you have, the better the mortgage deals will be available to you.
Mortgages terms can last up to 40 years, so it’s important to throughly reserch the one that is best for you.
There are 3 types of repaying your mortgage loan amount: repayment, interest-only, or a combination
Interest only mortgage
With Interest only mortgages, each month you pay off just the interest with the actual mortgage loan amount borrowed is paid off at the end of the term. You will need to put a plan in place of how to do this. With interest only mortgages, you can only borrow up to 75% of the value of the property. How long you agee the term of the mortgage for, makes no difference to the amount of loan owed at the end of the term.
Repayment mortgages
As well as paying the interest on the loan each month, you also pay off a set amount of the loan and so are slowly decreasing the amount owed.
Combination mortgage
Part repayment and part interest mortgage.
Your mortgage is split into two parts: interest only and repayment. For the interest only part you will still owe some money at the end of the term that you will need to pay off with a lump sum.
The types of rate available with mortgages also changes; fixed rate or variable rate mortgages
Fixed rate mortgage.
You can get a mortgage deal where the rate is fixed for example for 2 or 5 years. Whatever happens to the Bank of England base rate will not affect the rate of interest you pay for this fixed period. After this period, you can review your mortgage and apply for a different rate or your mortgage will automatically switch to a variable rate as determined in the original offer by your lender.
Tracker rate mortgages
This mortgage follows the Bank of England base rate, meaning the interest rate is variable. Changes in the economy. Therefore, you could save money if the base rate is low. Or you could pay more if the base rate is high.
Buy to Let Mortgages
For property investors and landlords that will let the purchased property to tenants.
Flexible Mortgages
A flexible mortgage is a product that have the opportunity to make regular overpayments and, as a result, can pay less in interest overall.
Self Build Mortgages
The mortgage money is released in stages as the build progresses rather than as a single amount.
First Time Buyers
These are designed for people who are buying their first home and often have special offers.
Offset Mortgages
Mortgages that can reduce the amount of interest you pay by offsetting a credit balance against the mortgage debt.
Offset Mortgages
Mortgages that can reduce the amount of interest you pay by offsetting a credit balance against the mortgage debt.
Remortgages
Remortgaging involves switching your mortgage to another deal with another lender without moving property for a cheaper deal or to consolidate debts.
Other Costs that you will need to save for before getting your mortgage
As well as your deposit, there are other costs involved in buying a property and taking out a mortgage. Here are some costs that apply to most buyers:
The Mortgage product fee
Some mortgages have a fee for the administration and arrangement and this is often added to the total amount you will need to pay back.
Valuation Fee
Your lender will require you to have a survey carry out a mortgage valuation on the property to confirm its value for loan purposes. You can opt for an additional more in depth survey called a Building Survey which is a more comprehensive inspection of the property and gives you a detailed breakdown of the structure and any issues that the property could have.
Legal Fees
You will have to instruct a solicitor or licensed conveyancer to carry out the legal transfer of ownership and complete the contracts.
Search fees
Your conveyancer will carry out a Local Authority search (with detailed information about your property and the surrounding areas.), Water and Property search (for confirmation from the local water company that the sewers, drains and piping are maintained by them and to highlight the proximity of the property to public sewers) and Environmental search (for review of issues including landslips, subsidence, contaminated land due to historic landfills and waste sites and flooding risks)
Land Registry fees
The Land Registry charges a compulsory fee for registering the change in ownership and the fee is applied on a sliding scale that reflects the price of the property
Removal costs
Quite often people prefer to use a removal company to help them move to their new home.
Stamp duty
You pay Stamp Duty Land Tax (SDLT) when you buy houses, flats and other land and buildings over a certain price in the UK. For first time buyers, On your first home, you can claim a discount (relief) so you do not pay any tax up to £300,000 and 5% on the portion from £300,001 to £500,000. You usually pay Stamp Duty Land Tax (SDLT) on increasing portions of the property price above £125,000.
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Buy to Let Mortgages
These types of mortgages are designed for property investors and private landlords, who do not intend to live in the purchased property but will let property to tenants.