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First time buyers: Mortgages

Buying a house can be stressful and because it’s probably the most expensive thing you will ever own, it’s best to consider all the options open to you.

Let’s start with the basics, what are mortgages and how do you get one? In short, a mortgage is a loan exclusively used to purchase a property. The property is used as collateral to ensure the client pays back their loan and the lender can repossess the property if the borrower doesn’t maintain the agreed repayments.

Getting a mortgage is likely to be harder now than ever before due to steadily increasing house prices resulting in lenders being more careful. If you want to find out more about obtaining a mortgage, your best bet is to seek professional advice. One of the essentials to check is whether a mortgage can be transferred to another property if you want to move house before the current mortgage expires.

You can search online for an Independent Financial Adviser (IFA), or a local mortgage consultant will be able to help you. However, with such an important decision, you can never do too much research; make sure you don’t act on the advice of the first adviser you contact.

A mortgage is comprised of two parts, the principle borrowed and the interest levied on the loan by the mortgage lender until it is repaid. Think long and hard about how long a term you want to pay back your mortgage over, how much you can afford in monthly repayments, and how much money you can afford to borrow on the property at the beginning.

First time buyers can be particularly vulnerable to some elementary errors. If you get an interest only mortgage, you pay only the interest each month on what you have borrowed. This might suit people who want reduce their monthly payments, but at the end of the ‘mortgage term’ you will still owe the full amount of the original loan.

Other repayment methods include capital and interest repayment, where you pay the interest and part of the capital sum borrowed each month. Perhaps the safest option is to choose a part and part mortgage which allows you to choose between paying interest and capital every month. A mortgage calculator can weigh up the pros and cons of particular packages to determine which option would be best for you.

Here is a quick run-down of a few options available to you: variable rate mortgages involve payments that are subject to change; how much they move up and down is determined by the interest rate charged by your mortgage lender. This can be a risky option because while rates may start low, as they are at the moment, they may well rise later according to the base rate.

Because of this, many people choose a fixed rate mortgage where you agree the rate of interest from the outset. This means monthly repayments are the same throughout the term of your mortgage.

However, you will miss out if general interest rates drop.
You can find a good first time buyers guide online; and with the Internet, you have all the information you need at your fingertips.


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