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Mortgages 101 – The Definitive Guide

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Simon Cunningham

When you are stepping into the world of mortgages, you may get a little confused and wonder if the agent is acting in your best interests. That is why it is best to arm yourself with as much knowledge on the subject as you can before you apply for one. It is probably the biggest financial burden you will ever take on and so you cannot afford to make a mistake.

Since the financial crash, lenders must check the financial status of a client in more depth than they used to previously. The qualifying criteria are about to become even harder to meet very soon as the government tries to cool soaring house prices. That means that more people than ever will meet with a refusal when they apply for finance.

The Help To Buy Scheme is still in operation at the moment, so if you are struggling to raise a deposit, get in quickly before it ends as it inevitably will very soon.

For those of you who have found their ideal home in an estate agents in Colchester, here is some advice on mortgages that you will find useful.

The Deposit

The days of one hundred percent loans are gone. Nowadays the banks expect the property to have equity in it right from the start because makes their investment secure. Most people will only receive an offer of eighty percent of the purchase price. That means they must put down twenty percent deposit, which is a huge stumbling block. Under the help to buy scheme, the government pays fifteen percent of that, which leaves the borrower to find only five percent. You start paying the rest of the deposit back after five years. This scheme is one of the reasons that house prices have risen so fast as demand outstrips supply.

Repayment Mortgage

A repayment mortgage is one of the easiest to understand. You borrow the money at a variable interest rate and make repayments on it. The repayments will go up and down as interest rates fluctuate. For the first few years, most of the payments go to servicing the interest, but the balance slowly shifts until you pay less in interest and more off the balance.

Endowment Mortgage

Endowment mortgages are complicated and risky. You pay interest on the money you owe for the full term of the loan, and the rest goes towards life insurance. The theory is that when the insurance policy matures, there will be enough money in it to pay off the mortgage. Even after this system has left many people heavily in debt, it is still available. Many people who took out endowment mortgages found out that when the policy paid out, it fell short of the amount they needed for the mortgage. They then had to take out more loans to make up the difference. I would avoid endowments at all costs.

I hope you have learned something here, you could be tied into a mortgage for many years.


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