Applying for a mortgage particularly for first time buyers can seem daunting, and the mortgage market a bit of a maze. There are so many Mortgage providers offering so many different
types of Mortgages. So what's best for you?
We've illustrated the most popular mortgage options available.
100% Mortgages
This is the NO deposit mortgage, aimed at first time buyers. This may seem attractive especially if you
are currently renting a property and wanting to get on
to the propery ladder. However but bear in mind if interest rates were to rise and propery prices
reduce, you would owe more to the mortgage company than your homes' market value. Negative Equity.
Rates will be higher for this type of mortgage, so look for providers offering Fixed Rate or Capped Rate mortgage deals.
Fixed & Capped Rate Mortgages
Mortgage products where the interest rate is SET for an agreed length
of time guarding against interest rate increases.
Cash Back Mortgages
The Cash Back Mortgage is a mortgage with an additional smaller loan added. This is how the lender
can offer you some cash back. For first time buyers who need extra money for furnishings etc these types of mortgages
are very tempting.
The Cash Back incentive is also often used to encorage existing homeowners to switch mortgage provider.
Do read the smallprint, as with these mortgages you may find yourself tied to one lender at their
rate of interest for 6 years, or you may be charged a redemption penalty for moving your mortgage to another lender.
Interest Only Mortgages
A mortgage where repayments cover interest accrued on the loan ONLY. The balance of the mortgage remains
fixed until the end of the term when repayment is due in full. Repayment of the loan is then made using funds built up through
an endowment policy or other investments taken at the start of the mortgage.
The benefits are that these mortgages mean lower monthly repayments, but the loan amount is NOT being reduced.
This means you will need to rely on the performance of any Endowment scheme or savings program.
Repayment Mortgage
As above but monthly payments repay both outstanding capital on the mortgage and any interest accumulated.
Current Account Mortgages
Current account mortgages or offset mortgages, are a way of offsetting savings interest against mortgage
interest. The rate of interest on your savings is the same as you are paying on your mortgage. These mortgages are
now extremely popular as they allow you to pay off your mortgage faster. Your earnings are paid into your current
account and extra money left over at the end of the month is taken off the mortgage.
Discounted Mortgages
Used as an incentive by mortgage lenders to get you to take a mortgage with their company. Customers
are offered a guarantee from the lender that the interest rate will be lower than the standard variable
rate over a period specified time. However much the standard rate rises and falls, the discount will remain
at the same level. The shorter the discount period is the better the discount, periods
can range from 6 months to more than five years.
Remember you will be committed to the lender for the term of the discount unless you pay a fee. After
the discount period has ended your monthly payments will increase proportionally with the amount of discount that
was granted.
Equity Release Mortgages
Aimed at the over 60s, when clients own most or all of their home without a mortgage. The lender offers
a low interest rate mortgage in exchange for a portion of the profits if the customer
sells the home.
Bad Credit Mortgages
Bad Credit or Adverse Credit mortgages are available to clients who may have experienced previous credit
difficulties CCJs, defualts, bankruptcy or arrears.
You are likely pay a higher rate of interest than you would with a conventional mortgage, and you will need
a larger deposit. These types of mortgage are often refrered to as Non Status.
If you have been refused a mortgage or other credit facilities. You may wish to obtain a copy of your credit
file from Experian, Equifax and using the link to the company checkmyfile.com on this site.
"....checkmyfile.com offers the most exhaustive credit check and presents it in a very comprehensive way..." The Times
- May 2004.
Non Status Mortgages
Very useful for newly self employed customers or clients who have experienced credit problems. Lenders offer
lower loan to values usually 80% of the property value but accept less information from the client regarding proof of
income and past credit history. Expect to pay a slightly higher rate for a Non Status Mortgage.
Commercial Mortgages
These mortgages are for businesses seeking to purchase commercial premises, landlords and property developers
purchasing land. Interest rates tend to be higher and loan to values lower. Typically 70% - 80%.. Because of this many
newly self employed clients often use some of the equity in their own residential properties as security for commercial purposes.
Spanish Property Mortgages
Currently buying property in Spain has never been easier, or more popular . Securing a mortgage on a Spanish
property from the UK is now far less complicated. You will usually be able to borrow 70% of the property value, however you
should allow at least 12.5% for costs not the normal 10% you would expect in the UK. The Tax Law in Spain states that you
must pay 1.8% of the mortgage value in stamp duty and banks will charge you an arrangement fee of 1% of the mortgage value.
To compare Mortgage providers and make direct online applications and enquiries,
please see our Mortgages category.
