Mortgage knowledge is critical
Obtaining a mortgage is one of the most crucial financial decisions a person can make, and taking the wrong turn unfortunately means losing a huge sum of money. This can be a real mishap to one’s financial future and stability. Finding the best mortgage deals for anyone including first time buyers should then require thorough planning and an understanding of the basic elements of a mortgage.
Elements of a home loan
A mortgage is defined as a debt instrument secured by a real estate property (collateral). The obligation of the borrower is to pay back this debt with a prearranged schedule of payments. There are three elements of a mortgage contract: the term, the sum, and the interest.
The sum of the mortgage deal is simply the monetary worth of the loan. It depends on the amount a borrower requires. It is very important to set a budget and be realistic about the amount you can afford to pay for a home or other kinds of properties (flats, apartments, etc.). Going too high over the total amount of money needed can lead to financial disaster, such as acquiring more debt that one can handle. However, the best mortgages are not always the cheapest ones. To get a great deal, it is highly advisable to ask for a broker’s help in determining the size of money needed to purchase a certain property.
The interest is the amount in pounds added to the principal. Together with the principal, the mortgage interest is paid every month. This is otherwise called as monthly repayment. The interest varies from one lender to another. To receive the best mortgage is to obtain the lowest mortgage rates.
The mortgage term is the predetermined length of time in which a borrower has to fully pay back the loan. The term determines the monthly payment amount. Typically, the longer the term is, the lower the monthly payments will be. However, it must also be realized that a longer term may mean paying higher interest rates throughout the life of the mortgage loan. Use a mortgage calculator to see how the monthly payments change by varying the loan’s term, sum, and/or interest.
Steps in finding the best bank loans in 2013 and beyond
The following information is important for anyone seeking a mortgage or remortgage including first time buyers:
- Check your credit record and fix it if there’s any problem. Credit records may include outdated or erroneous information about your financial history. These errors can lower your chance to get a high credit score. The credit score can be the basis used by lenders to determine whether or not they are going to give you lower rates and more loan options. Your credit report is maintained by three agencies: Equifax, Experian, and Callcredit. It is important to take note that lenders (e.g. HSBC, First Direct) may score you differently from the scores these agencies have given you. Some lenders combine the Credit Application content, credit report information from one of the mentioned agencies, and historic relationship to determine a credit score. As a reference, today’s average credit score (Experian) is 783.
- If you have a bad credit score, get preapproved. The benefit of mortgage preapproval is boosting your credibility with lenders (e.g. Halifax, Abbey, Northern Rock) who deny borrowers that may not have the financial capability to take out a mortgage loan. The application requires information on income, savings and existing debts.
- Set your budget. Create a monthly financial record. Set out your monthly net income and deduct your monthly expenditures (e.g. electric and water bills, entertainment, food, credit commitments, etc.). It is best to look at several years past (e.g. 2011 or even 2010) to get a firm understanding of ones finances. The mortgage under consideration must be able to fall within your financial capacity.
- Ask several lenders (e.g. Nationwide) for necessary information. There are as many different price ranges as there are different types of mortgage lenders—credit unions, building societies, and proprietary lenders (i.e. banks). Contact as many as possible to obtain the best price. It is also highly recommended to hire a broker who can help you shop around and compare mortgages available in the market. While your access to different lenders is narrow, a broker has a wide network of great lenders. Though, make sure that you can give your full trust to just one broker. Otherwise, you may need more than one agent who would act on your behalf.
- Watch over your broker’s shoulder. Be involved in every transaction your broker engages in. Never leave everything to him or her.
Your broker must do the following:
- Check your financial status—from your income to your expenses, liabilities and the changes that may likely occur once you obtain the mortgage.
- Discuss the most appropriate mortgage term and compare repayment costs.
- Explain the different repayment methods and mortgage deals available and advise you which is the most suitable for your current financial standings.
- Provide recommendation and give you a clear explanation in case you have and questions.