In this post of Extra Mortgage we will give you some ideas about Mortgage Advice for Beginners and Dummies,Mortgage Basics,Beginners' guide to mortgages in very simple language. Let's Begin.
One of the most important financial decision you'll ever take is getting a mortgage. It's one of the biggest financial commitments most people make alongside private school fees to their children if they're lucky enough to go to for them.So what is a mortgage? a mortgage is a secured loan that makes it different from alone.You might take out for example unsecured to buy a car or just simply by racking up credit card debt or using a store card. Those are unsecured right now, the difference is very simple a secured loan and mortgage.
Here's the deal you go to a bank so i want to borrow a hundred thousand pounds, the bank says that we want balloon secured on an asset. that asset being the house you plan to buy. The daily simple and it's a two sided deal. In return for that security the bank will offer you a low-interest-rate. In here the load is secured and that means if you fail to repay it or keep up with three payments the bank reserves the right to seize your property and sell it and use the proceeds to repay the loan. So mortgage has one benefit that's up front the interest rate tends to be a lot lower then you can get in any other loans and that's because the bank has a lot of security in the form of your property.
Now property prices can go down as well as up. which is why bank will not lend or certainly not anymore the full value of the property to somebody wants a mortgage. what does that mean and what practical consequences that have you trying to get a mortgage. well here is the solution. let's take a help of an example. so there's a house. Let's say that the value of the house on the open market is 100,000 pounds. and you plan to put down a 30,000 pound deposit. And that means you need a seventy thousand pound alone or mortgage. So a combination of what's called equity that's your bit and alone bank secured on the property makes up the funding. Compared to that as a percentage LTV is 70,000 as a proportion of the value of proprietary loan-to-value ratio is seventy percent. The higher the loan-to-value ratio naturally higher the interest rate. So if you can scrape together as much of a deposit as you can get hold of bring the loan-to-value ratio to tend to find the better deals and become available.
Why we no longer seeing loans in excess four hundred percent the value of property? while unfortunately if you allow someone to borrow a huge amount of money and the value of the property then drop. So imagine for example if I take out the deposit all together and I make the loan one hundred percent. So imagine that the whole thing still following my scribblings here is funded by a mortgage the danger is this if the value of the property drops then which it could do the 90,000. You are now in something called negative equity. It's the danger taking out loans that are a high proportion of value of property. Negative equity means the property is not enough to pay back the loan 90,000 be sold the property tomorrow won't pay back.
Once we hit the financial crisis unfortunately banks are now being very conservative unfortunate because it makes it harder for other people to get onto the property ladder at all. so that's a negative equity what Americans call being underwater. now once you decided how much you're going to borrow 70,000 in my previous example you've got a couple of choices you can either go interestingly or you can go a repayment style mortgage. what's that mean? basic choice for all mortgage products all loans fall into one of those two camps essentially no matter how they're written up in the advertising literature there is interest only loan repayment it's worth bearing in mind. mortgage is now upside to interest only. The loans payment every month the bank is lower than it would be if you were paying them back interest and some of the original capital under the bounds that's the outside the downside is you to be pretty damn sure that whatever you're going to use to repay the capital after 20 or 25 years.
For argument's sake is enough to do the job and the problem a lot of people found will have to the past is a set up these kind of little investment funds on the side saying well after 20 years it will have grown. so I gotta clear my mortgage have a problem is the equity market plummets your little savings vehicle isn't enough to repay the original load of your problem. so interest will be only mortgages attractive because the initial payment the bank will be relatively low but you've got to have some way to pay off the capital that you've borrowed in the future. the alternative is a repayment mortgage as there every month your repayment the bank is interest on the loan for sin problem it's a plus a little bit of the original capital you borrowed the idea being off 25 years for example you would have cleared all of the 100,000 pounds that's the amount you borrowed that you owe the bank. now downside to that one is you will find your monthly payments the bank are a Little bit higher because they include interest and some capital course. the upside is you know provided you keep your job and keep up three payments you will clear your mortgage after 20 or 25 years.
There are a couple of traps which I want to finish. this is a beginner's introductory guide. there are a few traps to watch out for with mortgages. so decision tree so far is how much do I want to borrow? how much do i need to borrow? how much of a deposit of I got this is the amount required by the property I'm after? that will impact the deal you can get from the bank but then you need to decide on the amount of borrowing. am I going to go down the interest-only or the repayment style route. now let's say for a moment I've picked a repayment style mortgage. I wanted to other things to look out for. number one when you're looking up mortgage rates again you can look up on sites so on you can look up rates on a number of different site. number to watch out for low ball initial deals the ones with the bank. what we can do is set you up for a few years aren't really low rate and watch out because once that low rate. ends you might be kicked into what's called the standard variable rate as the are lat maybe first of all not a fixed rate secondly a lot higher thirdly Redemption penalties if you take our deal and commits. you to a minimum number of repayment their. number is the number of years. if you need to sort of switch product or kick out of there early you know it was something goes wrong you may be stung for a big Redemption penalty simply to get out of the mortgage early. so there's a few traps to watch out for when you're shopping around for a mortgage.
Alright so just to recap their mortgages secured loan. good news is that means you can borrow lower than you would on other types of loan. first decision to make how much do i need to borrow or less you need to borrow so the better the deal you'll get. third thing just a bear in mind is that you want to make a decision between interest-only and repayment and he was going to make a decision between fixed rate and paying a variable rate of interest. lots of things to think about here fixed rates certainty variable rates well the opportunity maybe if your mortgage payments to go down and interest rates fall as well as up their eyes. so that another decision to make their do watch out the little sting in the tail including arrangement fees low initial rates to grab you in and redemption penalties. That's all for today, we will keep posing amazing stuff for you.
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