Mortgages
In recent years the mortgage marketplace has become extremely competitive and this has undoubtedly been good news for you, the consumer. It is felt though that the level of competition and the variety of the products available has also caused confusion for the consumer when they come to decide which mortgage really is for them.
To help you through this, described below are some of the generic basics of mortgage products, with further, more specific advice available by completing the Mortgage Request Form.
Mortgage Repayment
Despite all of the products available, there are basically two types of repayment - Capital and Interest and Interest only.
For capital and interest mortgages, it is normal for equal monthly instalments to be made throughout the term of the mortgage which, once the payments are complete, will see the initial sum borrowed repaid in full.
For interest only, as the name suggests, only the interest that falls due on the initial sum borrowed is covered during the life of the mortgage. At the end of the mortgage term the initial sum remains outstanding. Therefore it is important that a secondary repayment vehicle is available to meet the repayment of the initial sum. Without such a repayment vehicle, the lender could impose the sale of the property to meet the repayment of the debt.
Mortgage Term
Traditionally lenders have provided mortgages over a maximum of either 25, or in some instances, 30 years. However, in recent times there have been offers of 40 year mortgages in an attempt to make the housing market accessible to first time buyers as house prices rise.
Mortgage Amount
Whilst it is possible for 100% - or sometimes more - of the value of the property to be borrowed, it is much more common to see the purchaser make a deposit towards the purchase price of 5-10% or more and then borrow the balance.
Traditionally, the amount that could be borrowed was calculated using a multiple of the borrowers income, normally 3 or 3 ½ times. However, as interest rates have fallen in recent times some institutions, whilst still looking at income multipliers, are also looking at overall affordability. This means that it may be possible to obtain a mortgage that traditionally would not have been possible due to the level of the applicant's income. This is of course a risky approach because a mortgage is a long term commitment and even the best economists cannot predict mortgage rates over the course of the next 25 years.
Mortgage Interest Rates
In the majority of cases, the interest rate that the borrower pays is linked to bank base rate, although other set rates can be used such as the London Inter Bank Offered Rate (LIBOR)
In most instances, the interest rate will either be variable or fixed. Variable rates will move in line with changes to a specified underlying interest rate, while fixe rates will remain constant for a specified period of time, irrespective of market conditions.
In addition to the above, the lender will also require a charge over the borrower's property and it must be remembered that your house is at risk if you fail to maintain the mortgage repayments.
