Whether you are purchasing your first house or adding another property to your collection, you should have a deep knowledge of the process that goes into getting a mortgage. Buying property has a huge impact on your credit history and financial status so keeping up with all the information is important. Having basic knowledge of the UK mortgaging process is not enough; you need to know the terms, the conditions and the ways that contracts are written to be fully prepared to take the step of buying property.
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Essentials
A mortgage is a loan borrowed expressly for the purpose of purchasing property. This loan is to be paid back to the lender over a specified period of time and includes interest. Interest on the loan can be fixed or variable depending upon the conditions in the loan agreement. Security on the loan is the property itself which can be repossessed by the lender in case of non-payment of the mortgage amount. The lender is then free to sell that property to make up for the outstanding amount and possibly profit.
Repayment
There are two repayment methods available for mortgages, each with its own set of rules. Repayment Mortgage –
You repay the loan amount with the interest in a single monthly payment. Once you have completed payments for the full loan amount, you own the property. Interest only Mortgage –
You pay interest on the loan in a separate payment from that on the actual loan amount. The loan is secured on some form of investment plan like pension or endowment. There is no guarantee that you will be able to fully pay off the loan at the end of the term agreement using the investment policy. Interest Rates
Interest rates help determine the amount of your monthly payments. There are various interest rate deals you can get depending on the lender and your credit history. There are three major types of interest rates: fixed, variable and capped. Variable Interest Rates –
In the UK, variable mortgage rates are fixed by the Bank of England each month. Because of this monthly change, the amount you pay will change with each payment. When the rate falls, you can have a significantly lower amount to pay but when it increases, your payment will too. Fixed Interest Rates –
You are given an interest rate that will not change for the duration of your mortgage. This keeps your payments regular and guarantees you ownership of the property upon completion of repayment which takes between 2 and 30 years. Capped Interest Rates –
Set a limit on the amount of interest you will pay at any time. The payments can flex with the bank rates but will not go above a certain rate regardless of what the standard is. It is a combination of fixed and variable rates.
As in any other loan, the more knowledge you have of the process, the better off you are. You need to educate yourself on the essentials of mortgage, repayment terms, interest rates, and general terminology. Having superficial knowledge of the mortgage process is not enough. Just bear in mind that you will be responsible for the repaying the mortgage so the amount of time you spend prior to actually signing any paperwork will be well worth it.
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