YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
On this page of our site we will explain the main types of mortgages available and the potential advantages and disadvantages of each.
To understand the working of mortgage interest please visit our mortgage interest page.
Also known as capital mortgages, Repayment mortgages are the traditional means of paying for a property so that eventually it becomes fully yours as a result of the payments. The term of a repayment mortgage is typically 25 years and at the end of that period you would, if payments have been kept up, owe nothing to the lender.
Your mortgage payments are divided into capital repayments which are repayments of the money you borrowed and interest payments which are repayments of the interest charged for the loan.
Every month you pay off some of the interest and some of the capital. The monthly repayments on a repayment mortgage will be greater than an equivalent interest only mortgage.
A typical Repayment Mortgage is known as 'Front End Loaded'. This means that in the initial years of the mortgage more of your monthly repayment is towards the interest payment. However, as time passes this balance begins to change. In the later years more of your monthly payment goes towards paying off the capital. You then start to see your outstanding balance reducing more quickly.
Example. How many people have taken out a repayment mortgage for 25 years on a repayment basis and then decided to move after 2 / 3 years to find their mortgage loan hasn’t come down much? This is because most of those monthly payments would have been going towards paying the interest.
Choosing your term wisely can have a dramatic effect on the interest you pay over the term and your monthly payment.
Please look at some Repayment Mortgage Options by visiting our Mortgage sourcing pages pages or contact us for advice on repayment mortgages.
As the name suggests with an interest only mortgage you are only paying off the interest on the loan. The capital remains unpaid.
Typically, interest only mortgages run alongside an investment vehicle. The idea being that the investment is used to pay off the mortgage at the end of its term or even provide a surplus. There are many different types of investment vehicle such as Endowments, PEPs, ISAs, Pensions. Some of these are no longer available as vehicles.
The danger with this type of mortgage is that if the investment is unsuccessful, it may not provide enough money to pay off your mortgage at the end of the mortgage term. This may result in you having to continue paying for the outstanding mortgage, finding the money outstanding from other savings funds or may result in you losing your home.
Some lenders are now requesting proof of investment vehicle. Others will accept the value of the property to be sufficient security.
As there is a risk involved in with this type of lending it's always prudent to seek professional advice. Croft Mortgage Services is not authorised to give advice on investments.
Please check out some Interest Only Mortgage options by visiting our Mortgage sourcing pages or contact us for advice on interest only mortgages.
The good news for first-time buyers is that a comparison of interest rates reveals that rates for first time buyers are still relatively low in historic terms. Additionally, first time buyers have the advantage of not being part of a purchasing chain.
At Croft Mortgage Services we’ve examined changing trends in the property market and can reveal more innovative solutions to help you buy your first home.
First Time Buyer Options
Property prices have started to re-adjust to levels that are more sensible and affordable. Unfortunately due to the changes in Banks Lending criteria potential buyers are finding it more difficult to get a mortgage with many lenders requiring a deposit of at least 10%. Many banks only offer their best deals with deposits/equity of 40%, this proves very difficult for First Time Buyers. Many builders and Housing Assocaition’s now offer schemes to help First Time Buyers over come this difficulty
- Builders Shared Equity Scheme
- Help with Deposit
- Co Ownership
Builders Shared Equity Scheme
This scheme allows a first time buyer to buy the home without a deposit. The purchaser only pays a percentage of the full purchase price (e.g. 75%) but acquires 100% ownership of the property. The balance of the purchase price (e.g. 25%) is provided by the builder. The 25% is rent free for up to 10 years with the option of extending this by a further 5 years. No rent is payable for the duration. Of course you would have the option to buy out this share from the builder at any stage in the form of a mortgage. This would be subject to your banks lending criteria. The balance would be paid back to the builder on sale or transfer of the property at the open market value. This is a great way to help First Time Buyers get on the housing ladder without a deposit. It would also open up lower rates of interest from the lenders as the deposit is 25%, combined with a lower monthly mortgage cost.
Help With Deposits
Many of us havent raised sufficient funds for a deposit on a property. However, there are now new innovative ways that can help. Many builders now offer 5 to 10 % of the deposit as a gift to you. This then forms your deposit and many lenders are prepared to accept up to this ammount as a gift. When this gift is combined with turn key properties including white goods, it can offer great value. As you would be borrowing less money this means your monthly mortgage payments would be lower.
Co Ownership
This is known as shared ownership. It allows first time buyers to buy an initial percentage of the property value (e.g. 50%). This would be in the form of a mortgage and you would pay the bank monthly for the mortgage. You would have the option of purchasing further additional chuncks of the equity, right up to 100% in the future. The other 50% would be purchased by a Housing assocaition (The Landlord). As they own 50% of the property, you would pay them rent on a monthly basis. Again another means to help First Time Buyers on the housing ladder.
For professional help and guidance with all aspects of first time property purchase please contact us.
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