Selecting a mortgage
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Mortgages : Selecting a mortgage
Historically, it has been building societies or banks that offered consumers mortgages
for their homes. Nowadays, the competition has increased, with speciality mortgage
lenders, credit companies and other non-bank financial institutions vying for
your mortgage business.
This is all good news for those who are looking for a mortgage, rates are competitive
and nowadays it is more than likely that you will find the deal that meets your
budget, as well as your specific borrowing needs.
Having said that, first figuring out what kind of mortgage is the right one
for you can be a nightmare. Following are some of the most common mortgage offered
by companies, explained in simple laymen’s terms:
- First
time buyers mortgage – these are mortgages geared towards people
buying their first home. In most cases, such buyers will not have much cash
to pay a large deposit and because of this, mortgages will be tailored towards
lower deposits or fixed monthly payments.
- Variable and fixed interest rates – mortgages can have two types of
interest rates: variable and fixed. Variable, as the term implies, is when
the interest rate fluctuates according to market rates. So, when market rates
fall, the interest on your mortgage falls; however, when market rates increase,
so will your mortgage rates. Fixed rate mortgages carry the same interest
rate, irregardless of what the market interest rates are. This is good in
the sense that your monthly payments will always remain the same, but bad
that you cannot benefit from lower payments when market interest rates fall.
Many borrowers may start with a fixed rate mortgage and then switch to a variable
one later on, if interest rates have fallen.
- Buy-to-let mortgages – these mortgages are aimed at existing homeowners
who want to buy another property to let out to tenants, primarily as an investment
vehicle.
- Non-status
mortgage – for those borrowers that are unwilling or unable to provide
necessary documentary evidence of their income. This could either be due to
bad credit or the fact that they are self-employed and earnings are erratic.
- Second mortgage – as the term suggests, an additional mortgage on
an existing property. In many cases, borrowers take out a second mortgage
due to unforeseen expenses, such as medical costs or tuition, or simply the
need for additional money to make home improvements or other expenditures.
- Re-mortgage – previously this term carried a negative connotation,
but nowadays, it is commonplace for people to re-mortgage their property.
This could simply mean that they are switching lenders to a better mortgage
deal or switching from one mortgage type to another to reap benefits of lower
interest rates, for example.
These are just a few of the most common types of mortgages that are available
to borrowers looking to purchase a home. Contact a professional lender to give
a more comprehensive list and description of a mortgage
that best suits your financial needs.
To find out a little more about selecting
a mortgage and commonly asked questions you can read more at 1 Stop Finance