Are you interested in purchasing a home but are at odds when it comes to finances? Do you cringe at the thought of a mortgage as you do not know what it entails?
Well, a house mortgage system is a great resource that can help you own that home. So, we delve into what the house mortgage system in the UK entails.
Defining a mortgage
A mortgage is essentially a loan given to the borrower to buy a property or maintain it. The borrower will then make periodic repayments to the lender over a specified time.
To understand the terms of a mortgage and how different it is from other loans, we look at some distinguishing factors.
Security for the mortgage
A mortgage works as a secured loan. You do not need to worry about putting up your car or shares to act as security. Instead, the property against which you are borrowing the funds acts as sufficient security.
The lender holds on to the security until you make the final payment. If you default on paying, you can suffer substantial losses. The lender can repossess the property quickly.
How long do you have to pay back the mortgage?
Here is the good news. You do not need to sell all your remaining assets to finance the loan. Typically, a mortgage is a long-term loan. The lending institutions acknowledge the fact that mortgages involve a huge tiding. As such, the repayment period runs to about 25 years.
If you find a breakthrough in personal finances and opt to pay out the interest and capital within a shorter time, then the back recalculates the payment amounts for you.
Further, if you endeavor to finish the loan in a few more years, this can also work in the UK. The interest over the period will change to reflect the extended period.
Eligibility for a Mortgage
To understand your chances of being able to get a mortgage, lenders look at:
- Your credit history
- Your income
- Any debts you have
- The value of the property
- Length of the mortgage
- Your expenses
- Your age
- Your deposit
Primarily, these helps lenders determine your ability to honor your repayments.
Getting started on a mortgage
If you have your eye on a great property, the next step is to get funds to finance the purchase. In the UK, building societies and banks are great places to find the loan. You can either use a mortgage broker or go directly to the institution.
You will then choose the type of mortgage that works out for you. Once you verify that you are eligible and pick the appropriate mortgage, you then sign the agreements.
Initially, you will deposit to the institution, which acts as the down payment. The deposit is usually 10% of the property’s value if it is a 90% mortgage. The balance is then given out by the mortgage provider and referred to as the Loan to Value. You will marvel at the simplicity of the process.
What are the types of Mortgages?
Your circle can help you get a great mortgage if they have a good credit history. The guarantor mortgage requires you to have a close friend or relative sign the agreement with you. In the event of default, it becomes your friend’s responsibility to make the payments. You can, however, choose to get quick loans without guarantor for a swift process.
First Time Buyer Mortgages
For this type of mortgage, you only need to have a small deposit. Luckily, some schemes exist to enable you to acquire your home for the first time.
Help to Buy Mortgages
Government schemes are brilliant as they help you to obtain the mortgage by issuing an equity loan. You can use the loan for your mortgage deposit. If you are stuck on where to begin without that small deposit, then this mortgage is ideal.
Right to Buy Mortgages
If you have lived in your council house for more than three years, there are great benefits that you can reap. You can buy the property at a discount, even up to 70% off the property’s value.
No deposit Mortgages
The mortgages that do not require deposits are 100% mortgages. For this, you need a guarantor for the security.
If your credit score is poor, then there is light at the end of the tunnel. You can purchase a home despite having been in financial distress through sub-prime mortgages.
The mortgages that have constant interest rates over a given period are fixed-rate mortgages.
For these mortgages, the interest rates are not constant. Instead, the Bank of England base rate determines how they fluctuate.
What fees do you need?
Application fees- charged at the initial stage even if you do not take up the mortgage.
Broker fees-if you use a broker for the mortgage.
Valuation fees- to help ascertain the worth of your property.
Interest fee- given as the repayment amount for each month. Various institutions have mortgage calculators to illustrate these and offer different rates.
Exit fees- apply when you switch your mortgage provider.
Early repayments- if you wish to adjust your repayment period to a shorter period.
Stamp Duty, Land Transaction Tax, VAT and local authority searches.
Getting a mortgage in the UK is a simple yet comprehensive process. However, once you find an ideal mortgage, be certain to make your repayments as they fall to avoid repossession.