Mortgages represent a contract signed between two parties, lenders and clients. Lenders are the ones who offer money to clients in exchange for the right to take some measures in case the clients fail to repay the money they borrow and interest rates. Mortgages represent an inexpensive kind of debt used by many people for every kind of need. Most common mortgages are used for buying a home or a property to rent. There are buy to let mortgages, interest only mortgages, mortgages for first time buyers, remortgages, and many more mortgage services available today.
Different Types of Mortgages
In the most basic form, the interest rate represents the cost of borrowing money from your lender. It is calculated as a percentage of the total mortgage balance and is paid monthly. The most commonly accessed mortgage is the repayment mortgage. Your monthly payment includes parts of the loan as well as the interest rate. There is a different type of mortgage that allows you to pay only the value of the interest for the duration of the mortgage. You will pay the interest every month, and you will have to pay the total sum you borrowed at the end of the loan period. These services are known as interest only mortgages.
When talking about mortgages, most people choose a fixed-rate one with a duration of up to five years. The advantage of a fixed-rate mortgage is stability, as you will not be surprised by the increased interest rate. Conversely, mortgages with variable rates can experience sudden rate increases. For people wanting to advance on the property level, between 20 and 30 years is the term for a mortgage used to buy real estate.
As a general rule, you should always compare the available mortgage deals before choosing one. Study the market to learn what different lenders offer and hunt for the perfect deal for you. Contact a mortgage advisor, also known as a broker, and he will do all these things for you. Brokers can conduct market research at the highest scale, as this is their job. A good mortgage broker will save you a lot of trouble in finding the best deal for your situation.
How do Mortgage Payments Work?
The most popular way of repaying the mortgage is by paying back sums representing a part of the borrowed sum combined with interest charges. This way, at the end of the mortgage, you will have paid off the whole borrowed sum plus the interest. On the other hand, with interest only mortgages, you will pay less money each month but will still owe the entire borrowed sum at the end of the term. A repayment plan represents a guarantee that your lender will require before offering you interest-free mortgages. A repayment plan is mandatory before accessing this type of loan.
In most cases, taking a mortgage for buying a house represents a big commitment. Besides the mortgage, you must also come with a deposit, meaning your personal funds. A larger deposit translates into a smaller mortgage, meaning lower payments. For repayment mortgages, when the end of the term comes you will have repaid the entire value of it. This is not the case for interest only mortgages, as at the end of the term you will have paid only the interest rate. So unless you make some arrangements for paying back the whole value of the loan at the end of the term, interest only mortgages might be risky for you.
Keep in mind that the lender has the right to repossess a property if payments are not respected. In extreme cases, not respecting a mortgage deal will lead to much trouble for you, mainly in legal fees and other penalties. But be not afraid, as there are so many deals available on the market aimed at helping you, including insurance plans for protection against unforeseen events. So always talk with your broker to explain any questions you have and any specific details about your monthly mortgage payments.
Why are Interest Only Mortgages Unpopular?
When they first appeared, interest only mortgages became popular due to their accessibility. However, lenders soon had to deal with clients who were unable to pay their debt. As a result, it became more difficult to access interest only mortgages, and they decreased in popularity.
Nowadays, few lenders offer interest only mortgages, and if they do, they have some requirements to make sure you will pay off the loan. Such requirements include a high deposit and assets guarantee. Conversely, it is common for buy-to-let mortgages to be interest only, as landlords can use the property as an asset and the renting income for paying the interest rates. If you have a high deposit, higher income, or a lot of equity in your property you might find a good interest only deal available for you. It is also useful to know that mortgages can be paid off earlier than the decided term, although with some penalties.
What Is a Remortgage and Why Is It Important?
Remortgaging is the process of switching your mortgage between lenders, for a new deal. Remortgages are usually used at the end of the mortgage term, to bring improvements to the home. The borrowed money can also be used to pay off the previous mortgage or other debts. People become interested in remortgages before their mortgage is due to end.
When it comes to fees, a remortgage is not much different from other mortgages. Usually, you might be offered a discounted fee from your lender. On the other hand, if you switch lenders additional fees may apply to you. In most cases, however, they will want to lure in new clients wanting to remortgage, so you can expect low-to-none fees. If you want to apply for a remortgage, ask your broker for the remortgage.
The main reasons to remortgage are:
- To pay less money each month. By switching to a better deal, you may reduce your monthly expenses related to mortgaging.
- To release equity for a buy to let. A remortgage is a quick way to gain some extra funds, by accessing money tied up in your property.
- To merge multiple debts into a single mortgage. If you find a remortgage option with less interest than you normally pay, you could save some money in the long run.
- To make home improvements and many more. If your current mortgage is ending in the future months, you could plan to invest in your property or any other need with the money from a remortgage.
What Services Does a Broker Offer?
To summarize, the mortgage market includes a variety of services. Whether you require quick cash or want to become an investor and advance on the property ladder, a qualified broker will assist you from start to finish. The broker will lead you through the informing phase, choosing the right deal and applying for it, then will deal with the paperwork, you will receive the money, and, even after the process is completed, he will continue to support you. Finding the right mortgage plan has never been easier.
