BUYING A PROPERTY Mortgages
Before you even start viewing properties, it would be to your advantage to have a mortgage offer from a building society or finance company. This will help show Vendors you are a serious buyer and put you in a strong position if you are competing with other potential buyers for the same property.
The first thing is to work out how much you can afford and this will depend on what type of Mortgage you want to take out.
There are various types and which one is right for you will depend on your individual circumstances. Your local building society or finance company can help you work out the best Mortgage for your needs, but it will be useful to have an understanding of what a mortgage is and the types are on offer, so here is a brief summary.
What is a "Mortgage".
This is a loan secured against your home. "Secured" means that if you do not keep up the repayments, the lender can repossess your home and sell it to get its money back.
How much should I borrow? Usually you can borrow up to three and a half times the main earners income before tax, plus one times any second earner's income, or alternatively, two-and-a-half times their joint incomes (if this is larger).
Your lender may only count half of income such as overtime, commission or bonuses unless this is guaranteed. Lenders will reduce the amount they will lend if you have substantial outgoings such as other loan payments.
If you are getting advice, the adviser has a duty to take reasonable steps to ensure that you can afford a mortgage that he recommends. Whether or not you get advice, lenders are required to lend responsibly. This means that they should, based on things like your income, expenditure and other circumstances, consider whether you can keep up the mortgage repayments now and in the future; for example after an initial discount period comes to an end.
Interest Rates and Mortgage Deals
Confused by the different interest rates and mortgage features available?
Choosing between interest rates and mortgages on offer can be confusing. How do you know which interest rate is best for you? And should you get a flexible, offset or normal mortgage?
Types of interest rate deal
You have two important decisions when choosing an interest rate deal; whether to choose a fixed or variable rate mortgage, and whether to choose a short or long term deal. Your financial advisor or building society can determine your personal situation and suggest the best option from the following types of Mortgage deal:-
• Standard Variable Rate
• A Tracker
• Fixed Interest Rate
• Discounted Interest Rate
• Capped Rate
• Collared Rate
• Standard Variable Rate With Cashback
What looks like a more expensive mortgage today may end up being more suitable for you. Make sure you know what happens after any special deal ends.
Different Repayment Methods
There are two ways to repay the amount you have borrowed (the 'capital'). Their advantages and disadvantages are described below. Again, your financial or mortgage advisor can help you decide which is best for you and provide you with more detailed information.
Repayment mortgage (also called a capital-and interest loan)
Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.
Interest-only mortgage
Your monthly payments cover only the interest on the loan. They do not pay off any of the capital. You will need to arrange to pay separately into a savings or investment scheme to build up a lump sum to pay off the mortgage at the end of the term. It is your responsibility to make sure you have enough money to repay the mortgage at the end of the term, otherwise you could lose your home.
For more details about mortgages visit the Financial Services Authority's website at www.Fsa.gov.uk
For more advice on buying click through the other pages in this section.
• How to buy better
• Valuing the property
• Make the best of viewings
• Negotiating the price
• Instructing a solicitor
• Building Surveys
• Home Information Packs
• Buying Advice
