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It’s a common saying that buying a home may be one of the biggest financial decisions you’ll make. However it is one of the biggest investments you will make. Therefore it is important to understand some of the key financial aspects involved in home ownership. A mortgage is effectively a loan, a special loan. Effectively, a bank agrees to loan the money on the understanding that you will pay back the loan, plus interest, over the agreed length of time(Term). But what happens if your stop making payments? A mortgage is a “secured” loan, which means that the lender is protected because you have agreed to offer a form of collateral (the home itself) to pay-back the loan, hence the need for solicitors.
If you stop making payments on the property or is unable to continue doing so, the bank can legally take possession of the home and force the occupants to leave. Hence, the need to be Protected.
It is important are you never take out a mortgage unless you’re sure you can pay it off. The 2008 housing crisis was evidence of what can happen when a large number of people suddenly find they are unable to repay their mortgages.
The amount of the loan depends on several factors.
• The first is the value of the home that you hope to buy. The bank takes into account your credit history, any assets you have and your employment. This is used to judge the affordability of the loan. Hence, the higher your credit score is, the better chance of getting the lowest possible rate.
• You’ll also likely get a better rate if you’re able to make a bigger down payment towards the price of the home up front.
• In essence, the less financially risky you appear to lenders, the lower the rates you will ultimately pay.
In addition, you need to consider the type of mortgage the two most common are:
• A fixed-rate mortgage is the most common type, this is when the interest rate is fixed for a certain period e usually 2, 3, 5, and maybe 10 year then reverting back to a Variable rate. This offers stability in the early years of the mortgage and again is less risky to the lender.
• Standard variable-rate mortgages (S.V.R.) is where the interest rate is adjustable by the lender usually when the Bank of England alters their rate. While you’ll often get a lower interest rate on this type of loan you are exposed to change and therefore more risky to you and the lender.
• In addition there are other types, Capped where there is a ceiling on interest rate rises, Stepped where it increases annually to make the first year more affordable, Tracker where the bank can only change the rate in-line with the B.O.E. Lastly Interest only Mortgages this is where you never pay-off the amount borrowed, and potentially lose the home unless you a solid plan in place to pay-off the mortgage.
• Interest only mortgages are particularly useful for people over 55 who are awaiting a pension or investment maturity, or awaiting an older age where they can Release Equity to pay-off a mortgage.
If you stop making payments on the property or is unable to continue doing so, the bank can legally take possession of the home and force the occupants to leave. Hence, the need to be Protected.
It is important are you never take out a mortgage unless you’re sure you can pay it off. The 2008 housing crisis was evidence of what can happen when a large number of people suddenly find they are unable to repay their mortgages.
The amount of the loan depends on several factors.
• The first is the value of the home that you hope to buy. The bank takes into account your credit history, any assets you have and your employment. This is used to judge the affordability of the loan. Hence, the higher your credit score is, the better chance of getting the lowest possible rate.
• You’ll also likely get a better rate if you’re able to make a bigger down payment towards the price of the home up front.
• In essence, the less financially risky you appear to lenders, the lower the rates you will ultimately pay.
In addition, you need to consider the type of mortgage the two most common are:
• A fixed-rate mortgage is the most common type, this is when the interest rate is fixed for a certain period e usually 2, 3, 5, and maybe 10 year then reverting back to a Variable rate. This offers stability in the early years of the mortgage and again is less risky to the lender.
• Standard variable-rate mortgages (S.V.R.) is where the interest rate is adjustable by the lender usually when the Bank of England alters their rate. While you’ll often get a lower interest rate on this type of loan you are exposed to change and therefore more risky to you and the lender.
• In addition there are other types, Capped where there is a ceiling on interest rate rises, Stepped where it increases annually to make the first year more affordable, Tracker where the bank can only change the rate in-line with the B.O.E. Lastly Interest only Mortgages this is where you never pay-off the amount borrowed, and potentially lose the home unless you a solid plan in place to pay-off the mortgage.
• Interest only mortgages are particularly useful for people over 55 who are awaiting a pension or investment maturity, or awaiting an older age where they can Release Equity to pay-off a mortgage.