Buying our own house is one of the greatest joys in life. It gives us the independence to finally spread our wings and find our own feet. However, unless you have $250,000 to hand, you’ll need to take out a mortgage. A mortgage is a loan which you take out in order to but a property. The most common term to choose for your mortgage is 25 years. When you come to take out your first mortgage, it can be a little bit daunting, but paying for your family home isn’t as confusing as you may think.
Interest rate is a crucial factor in choosing a mortgage lender, and whether you choose a bank as your lender or a mortgage company such as Enness Mortgages, getting the best interest rate you can is important for buying an affordable mortgage package.
There are two main types of interest rate you can opt for when choosing your mortgage:
Fixed Rates: This interest rate will be set at a certain level for a period of time. This period is usually two, three or five years. During this period your interest rate will not change, meaning that you can count on your mortgage payments being the same each month. This is a great option for first time buyers because it offers the security of knowing that payments won’t rise.
Tracker Rates: This is where the rate you pay will change depending on the interest rate currently. This can be advantageous if the rates drop, however try to be aware that the rates can also rise.
How to repay the loan
Similar to the interest rates, mortgages also come in two types.
Repayment Mortgage: This is the most common type of mortgage, and includes paying off a small sum of the mortgage and interest each month. By the end of your mortgage you will have paid off the full sum.
Interest Only: This type of mortgage means only paying off your interest. However, it also means that at the end of your term, you’ll still have to pay off the full sum. It is a great option in the short term because the monthly payments are cheaper, but if you don’t have a plan for the future it isn’t the plan for you.
How much you need to borrow
Typically, mortgage lenders will quote a maximum loan-to-value, which is the maximum value they will consider lending you, expressed as a percentage of the value of the property. The remaining percentage will need to be provided by you as a deposit.
The lowest rate most lenders offer is 60%, meaning that the buyer will be putting down 40% of the value as a deposit.
Luckily, with the way our economy is struggling at the moment, lenders will still lend up to 95%, meaning that if you are struggling to build up your savings, you could still do it with a 5% deposit.
Charges and fees
As with any service, many mortgages will come with extra fees. These can include you paying a product fee up front, or an arrangement fee for the service. Sometimes a lender will offer you a range of deals on the fees, so look out for those if you can. Generally, it is better for you to pay a larger fee and get a lower interest rate, because in the long term it will save you more money in the long term. Even if it seems like a high cost to pay out at the time, you will easily recoup the cost with the money you save on monthly payments.
When repaying your mortgage, if you miss any payments you will face fees for being late. Make sure that you take this into account when applying for a mortgage along with running costs of your home. Make sure you can comfortably afford to pay out for the mortgage, bills, food and lifestyle. The last thing you want is to get into your property and not be able to afford your living.
A secured loan
When you take out a mortgage, you need to remember that is a loan. If you miss repayments frequently, the lender can repossess your home to pay off the costs. This will mean you lose everything you’ve worked so hard to achieve. If you ever find that you are struggling with your repayments, make sure to contact your lender immediately. They may be able to find a way to help you out with your payments and get back on track.