Defining a mortgage
If anyone wants to own a residential or commercial real estate property and are in need of money to make the purchase, the most common or standardized finance solution today is to take out a mortgage. To provide a straight forward definition – a method of repayment of a loan in which a property is used as security is known as a mortgage. Mortgages are not only meant for real estate (apartment, house, property, etc.), but other large property types such as boats. Mutual finance organisations such as credit unions, building society entities, and banks (lenders) are the usual funding sources for loans. But before seeking a mortgage quote, there are certain aspects to be considered by individuals. For example, what are the types of mortgages, mortgage rates, fees, etc.? Listed below are some of the different aspects of the common offers that will help you in making the correction decision when it comes time to securing your future home loan(s).
Types of home loans
- Repayment: In this kind of loan, the method of repayment is completed by paying back both the capital and interest.
- Interest only: In this solution, only interest is paid and the capital is not paid till the end of the term of the loan.
- Endowment: This type also consists of only interest being paid, whereas the capital repayment is completed by an endowment policy or policies at the expiration of the term.
- An investment backed mortgage: Though it is an interest only loan, here the repayment is carried out with the proceeds of an investment plan, ISA, or PEP at the termination of the loan period. However, PEPs are not available for new investors.
- Pension: An interest-only loan at the time of retirement, whereby repayment is through the tax free cash of a personal pension scheme.
There are also many other options such as: buy to let mortgages, right to buy, first time buyers mortgages, flexible, adverse credit, self–cert, non-status, deferred interest, offset, remortgage, foreign currency, and 100% mortgages.
Make sure to do your due diligence and besides doing just online research, talk to the different finance lenders (e.g. Halifax, Nationwide, HSBC) to compare mortgages of the various solutions and find out what are the best mortgage deals for you. One can work through a mortgage broker who has already put in the work to locate numerous kinds of loans from different lenders. They are extremely knowledgeable in the area and can even provide solutions that an individual can’t receive directly from a bank. Another excellent way to explore the ins and outs of a particular loan is to leverage the power of a mortgage calculator.
Different interest mortgage rates
- Variable: Here the interest rate varies according to the lender’s wish.
- Standard variable: A resident standard or default option offered by the various lenders including AIB, Accord, and Natwest. Each lender will have a slightly different solution.
- Tracker: The variable tracker rate is connected to the repo rate of the Bank of England, by a pre-fixed margin. Often, for the borrowers, LIBOR is the link for the tracker rate.
- Fixed: The interest rate is constant for a certain period of time such as 2 to 5 or 10 years. Though long-term fixed rates are available, they are not popular, the reason being that their early repayment charges are high and end up costing you more.
- Discount: In the discount rate the standard variable rate shows a reduction for a fixed period of 1 to 5 years in the beginning of the borrowing period. Sometimes the interest rate reduction is decreased step by step. For example, in the first year it may be 3%, in the second year 2%, and in the third year 1%.
- Capped: The capped rate is the same as a fixed rate in that it is constant. The variation of the rate can be beneath the cap, but not above the cap. Sometimes if a minimum rate is imposed upon this type then it is termed as collar associated.
Associated Lending Fees
Product fees, early repayment charges, valuation fees, and higher lending charges are some of the possible fees charged by lenders. Make sure to know exactly what fees apply to you when applying for a loan for your house from a bank.
The above provided guide and information will enable you to explore the various aspects of mortgages with confidence and decide on the optimal solution according to your needs.