A mortgage is the name given to the loan that you take out when you purchase a property. A mortgage loan is usually secured against the property being bought and if payments are not made, the mortgage lender can repossess the property and sell it to recover the amount owing. A mortgage loan is made up of two parts, the principal and the interest. The principal is the amount that you have borrowed to purchase the property and the interest is the amount that you will be charged by the lender.
The two main types of mortgage loans available today are repayment mortgages and interest only mortgages. There are two things to consider when choosing which lender to apply for a mortgage from, the interest rate and the mortgage fee. The interest rate is the main element of any mortgage loan as most borrowers will be searching for the lowest possible interest rate. Most lenders will have their own standard variable rate of interest and they will usually only differ from lender to lender by a percent or two. The lower the interest rate, the lower the amount of interest you will have to repay to the lender over the term of the mortgage loan. The mortgage fee will vary depending on the lender and can range from a couple of hundred pounds to a couple of thousand. It can also be known as a set up or arrangement fee.
Some mortgage loans include an early repayment fee which means that if you want to pay off your mortgage before the term agreed, you will have to pay a penalty. This fee is usually incorporated into a fixed term mortgage loan. You should make sure that you do not choose a mortgage that comes with an extended repayment penalty. You should make sure that the repayment penalty does not extend beyond the terms of the fixed rate term.
It can be difficult to decide which type of mortgage to choose and there are many things to consider. The first thing is the amount you are going to borrow. This will depend on things such as the amount you can afford to borrow, how much the property costs, how much you earn and how much the lender is willing to provide. The term of the mortgage loan is another thing to think off. You can choose from a variety of terms but you should be aware that the longer you choose, the less your repayments will be. However, you will pay more in the long term as you will be paying interest for a longer period.
If you want to find out how much a lender will be prepared to give you, you can speak to one of their mortgage advisors or most lenders will have a calculator tool on their website which you can use to check. Each borrower’s circumstances will be different and the lender will base their decision on many factors. Whether or not you have children will affect how much you can borrow. Your outgoings will also play a role. A lender will only lend you a certain percentage of the full purchase price of the property. You will need to have a certain amount put by for a deposit. 100 percent mortgages used to be very popular but with the global economic downturn, these have become very rare and if they are available they usually come with a very high interest rate.
At the moment, first time buyers are finding it hard to get a mortgage loan but many borrowers who chose a tracker mortgage are benefiting from the drop in interest rates. However, this trend is unlikely to continue and as the world’s economy slowly starts to recover it is expected that interest rates will begin to rise again. The trick for many is to try and secure a fixed rate before the interest rates start to rise again. It is very difficult to get a tracker mortgage loan while the interest rates are so low.