Mortgages
So you’ve decided its time to fly the nest and buy a place of your own or perhaps you’re already on the property ladder and its time for a change. Either way you’ll most probably be looking at taking out a mortgage.
But what is a mortgage? A borrower would opt for a mortgage in order to purchase a property, a mortgage itself is a loan taken out and usually paid back, with accumulated interest, over a period of 25 years.
The thought of taking out a mortgage can be quite daunting and indeed confusing however there are a number of different mortgage products on the market which are readily available from the majority of banks and building societies. There are also a number of specialist mortgage providers.
Before you take out a mortgage you need to consider what you can afford to borrow and of course pay back. A major contributing factor which will decide what you can and cannot afford to pay off each month will be dictated by the current interest rates.
Interest rates are determined by the ‘base rate’ set by the bank of England which may rise or fall at anytime. If for example the base rate increases by 0.5% and you have a mortgage for £100,000 you need to consider realistically whether you can afford to meet the repayments.
The mortgage lenders will also be able to dictate how much you can borrow and this amount is based upon your salary combined with a multiplier. Nowadays some lenders will let you borrow up to six times your annual salary, but the general consensus is that three or four times your salary is the most sensible level.
Primarily there are two types of mortgage repayment methods they are 'repayment' and 'interest only' and they differ in the following ways.
A repayment mortgage means the borrower pays back the total borrowed amount plus interest over the agreed period if time between borrower and lender.
Paying back a mortgage by interest only means the borrower literally just pays back the interest each month. This is also how an endowment mortgage works. On top of the mortgage repayments the borrower also pays into a seperate savings plan which should pay off the mortgage at the end of the term.
When choosing a mortgage it is important to compare as many offers as possible and there are now services that will do this for you. However you should be sure to read all the terms and conditions to avoid any hidden charges.