People wish to live a happy and comfortable life, but many of the comforts require a significant amount of money that unfortunately few people have. Many people are not affluent and require some financial support to allow them to fulfill their wishes, such as buying a home.
A home is a place of love, care, and belonging that nearly every person needs at a certain point of time, and particularly when he marries and wants to settle down to start a family. Houses are probably the most expensive purchase that a person as to make, and there are many careful considerations and decisions that he has to make. One best solution that allows aspiring first-time homebuyers to fulfill their wish of buying a home is through ‘mortgage’ also known as ‘home loan.’
A mortgage is a loan that is taken by a potential homebuyer to buy house, land, or some other property. A mortgage loan is an amount that is given by a lender, and the borrower (homebuyer) agrees to pay the loan along with interest for a given duration of time. The standard term of mortgage loan is 25 years, but the period can be longer and shorter.
The loan amount is decided against the value of the home until the person pays off the loan, if a person cannot keep up with the monthly scheduled payments and defaults on the loan amount then the lender has the authority to repossess the home and sell it to recover the loss.
The mortgage lenders include banks, private lending companies, and some government-approved mortgage lenders.
Mortgage companies near me ask me to put some money down, which is usually 5% of property value, and the rest of the mortgage amount is given by the lender. The mortgage loan is paid by in the form of monthly installments over the years whose number is decided by the lender and the homebuyer.
Mortgage loans are not easy to get, and a person has to consider a lot of things, and most critical is his financial situation which includes his monthly income, how much debt he owes, and certain other expenditures.
The mortgage companies also ask about household expenses, personal expenses, and child maintenance to ensure that a person would be able to make the monthly loan repayments and not default on the loan.
Nearly all mortgages are classified as repayment mortgages where a person has to pay some part of the loan and some part of the interest each month. There are also interest-only mortgages where a person would only pay interest each month and then pay the loan a person borrowed at the end of the mortgage term. The most common types of mortgages are
Fixed-rate mortgages
The interest rate would stay the same for the entire period of the mortgage term. The fixed-rate mortgages last from one to 10 years
Tracker mortgages
The interest rate that a person has to pay will depend on the external rate, which is determined by the Bank of England base rate and another fixed percentage.
Discount mortgages
In a discount mortgage, the interest rate is fixed in an amount which is below the lender’s standard variable rate (SVR) for two, five years, or whole mortgage term.
Offset mortgages
The savings a person has in his bank account are subtracted from the amount of mortgage a person pays the interest on. A person can either pay less loan amount each month or pay the mortgage as quickly as he can.
The few important things that a person needs to consider before choosing the mortgage type are
- How much money a person has saved for the deposit
- The type of property the person is buying which can be a house, flat or just land
- The length of time a person required to pay off the loan which is known as mortgage term
- How much a person can afford in monthly mortgage payments
- If a person is using any scheme or promotion such as Help to Buy
As a homebuyer, you should not choose the mortgage deal just on the interest rate as you will also have to pay an arrangement fee, which is higher if you choose to avail of low mortgage loans. The best mortgage deal for you will be a loan with a slightly higher interest rate and a lower arrangement fee.
There is a two-stage process for applying for mortgage loans; in the first stage, the mortgage companies will see how much you can afford and what type of loan would be best for you. The second stage is where the mortgage companies would see if you fulfill the eligibility criteria and an affordability check.
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The money you deposit means a lot like the more you deposit, the less interest rate you will have to pay. The money you will lend is called capital, and the lender charges you an interest rate which you have to pay until the loan amount is not fully paid