Mortgages can seem daunting, complex, and stressful. But in actual fact, mortgages are nothing more than a long-term loan taken out for the specific purpose of buying a property.
Mortgage Terms
To understand the details of a mortgage, there are some specific terms that are useful to know – as with most financial products, understanding what you are getting into is very important. In the UK, when you’re first getting on to the property ladder, a mortgage is often the result of tireless saving and maintaining a good credit rating with existing lenders.
Types
There are many different types of mortgages available and a huge number of organisations offering them. Your circumstances, the property you are considering buying, market conditions, and timing will all play a part in deciding which mortgage is most appropriate for you.
Rates
For some people, a fixed rate mortgage, where monthly payments stay the same is incredibly important, however, this can be expensive should the lender’s standard rate or the Bank of England base rate change. For others, a variable rate mortgage can be more appealing and allow them to save money, however, there is an element of risk when involved in this financial product. Variable rate mortgages can change, and change significantly, if either the lender’s standard rate changes, or the Bank of England changes its base rate. There are also mortgage products that take elements of fixed and variable rates, sometimes fixing the rate for a set number of years. These can prove attractive for young families who are having to budget carefully in the early years of home ownership.
Other expenses
Whilst a mortgage will cover the cost of physically buying the property, there are other considerations that must be looked at. These will include whether you should borrow a larger amount and retain some of your savings, or put down more of your savings and borrow a smaller amount. When making this decision, consideration should also be given to how long it takes you to accrue savings, and also how much cash you will initially require to cover moving costs, the cost of new furniture and furnishings, as well as legal fees, once the new property has been purchased.
Approval
There are often times when a mortgage will take time to be approved and for the funds to become available. This can be incredibly frustrating, particularly for first time buyers or those wanting to secure a property quickly. A bridging loan can offer the ideal solution in these circumstances. Bridging loans are short-term loans that bridge the gap when you’ve found the perfect property to purchase but the cash isn’t available quickly. These loans can be approved much more quickly than long-term loans such as mortgages and, whilst they require significant underwriting, they often have a much shorter application process.
Mortgages are major a financial product that need to be carefully considered and researched before you take one out. Whilst they can provide a real sense of achievement with respect to owning a property, they are also a very significant commitment and must be treated with the necessary respect. In many cases, and certainly over the long term, property prices increase and this can provide positive equity. However, there may also be times where the amount owing on mortgage repayments is more than property is actually worth. This must be considered and as with all large purchases, seeking the advice of an independent financial consultant is recommended.
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