Mortgages are often the main source of concern when thinking of buying property. There are several basic types and many special schemes all designed to entice you to a certain company.
There are other types of mortgage such as Investment-linked mortgages & Interest-only mortgages but they are far less common. Details of these types can be obtained from any lender.
- How Much can I/we borrow?
- The rules of thumb that almost all lenders stick to are:-
- For a single purchaser: 3 X Gross Salary
- For a couple: 2.5 X Joint-Gross Salary OR
- 3 X Higher Gross Salary + 1 x Lower Gross Salary
- You will get Tax-Relief on the interest charged on the first £30,000 of your mortgage.
- Try our handy calculator :
- What about other fees?
- The lender is likely to charge a High-loan-to-value fee if you are borrowing more than 75% of the property cost. This may be anywhere between £200 up to several thousand depending upon property price. Note that this cost is often added onto the mortgage itself and so is not incurred in one hefty lump sum.
- Certain types of mortgage will also incur separate charges, termed application fees, for setting up the mortgage.
- What type of Mortgages can I get?
- There are basically three types of mortgage to look into.
- (1) Repayment Mortgages
This is the simplest and safest form of mortgage. Essentially just like a large loan. This mortgage ensures that the full mortgage will be paid off in full at the end of the mortgage period (normally 25 years).
- (2) Endowment Mortgages
This type is complex and merits a WWW site of its own! Endowment mortgages comprise two separate payments, one is the interest on the loan and the other a premium on an endowment held with a life assurance policy. This is done so as to build up a lump sum which aims to repay the mortgage. The risk is that after the mortgage period has elapsed there may not be enough to pay the mortgage off. This type of mortgage is very flexible however and is more easily added to, to accommodate house-moves etc.
- (3) Pension Plan Mortgages
This is a popular choice for self-employed people and people who cannot join company based pension schemes. It basically combines mortgage payments with pension payments. There are also various tax savings for a mortgage of this type.
Other mortgage choices. For any standard variable-rate type of mortgage the interest rate on the mortgage will fluctuate with the economy. It is approximately 7.5% at the present time. There are special options however to reduce this figure for a short period of time. There are basically three types:-
The only downside to any of these options is that it is generally difficult to move house in the allotted time period, and these types generally incur a fixed charge to set them up.
- (1) Discounted rate mortgages.
This rate will reduce whatever the present mortgage rate is (e.g. 7.5%) by a fixed percentage (say 2%) for a fixed pre-agreed time, say 2 years.
- (2) Fixed rate mortgages.
Fixes the interest rate that you pay for a specified time period. The reduction possible is less than that of discounted schemes but has the main advantage of rigidly setting your monthly payment for a reasonable period.
- (3) Capped rate mortgages.
Combines the above two ideas to give a slight reduction in rate under normal circumstances but prevents your rate rising suddenly. These mortgages run for a preset time period.
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- All high-street lenders print leaflets describing house purchasing procedures and mortgage offers & types. It is well worth getting all of these to browse through.
- You will usually need a valuation of your property for Mortgage purposes.
This is the minimum survey required and is purely for satisfying the lender of worth etc.
- You can take out Mortgage Repayment or Loan Repayment insurance.
This ensures that if you are no longer able to pay the mortgage for some reason i.e. ill health or death, the mortgage will be paid-off in full preventing hardship to family etc. Endowment & pension-plan mortgages have this insurance built-in.