Taking out a mortgage is a massive milestone in your life; it’s easy to see how such a massive commitment can intimidate and confuse the uninitiated, however mortgages don’t necessarily need to baffle home-owners, and making sure you understand the specifics can make all the difference.
First things first, a mortgage is basically a loan secured against your home to be repaid monthly over a set period of time (usually 25 years). At the point of first securing a mortgage you will need to work out what you can afford to borrow; most mortgage providers will offer this service for you and calculate the size of the loan you can take out. Usually this involves an assessment of your previous address history, current earnings and outgoing expenses so that they can properly calculate the mortgage you are eligible for; though it might be tempting to take out the largest mortgage you can receive, it really is important that you remain aware of the repayments expected by the mortgage provider. At this point there is plenty of flexibility, and it is really worth talking to the mortgage provider in order to come to an agreement that suits your situation; details such as the repayment plan and the length of the repayment period are variable and are subject to change depending on your current situation. The length of the repayment period itself is worth careful consideration as a longer period could allow for lower initial payments that could then be increased later on to account for higher earnings etc; on the other hand, a longer repayment period will mean a greater amount of interest on the original sum.
The importance of the interest rate on your mortgage should not be underestimated at any cost; the lower the interest rate then the lower the amount that you will eventually have to repay, making a lower interest rate potentially worth a lot of money. The best tactic for ensuring a favorable interest rate is to shop around between lenders. By comparing different mortgage providers you stand a better chance of finding the best interest rate and best deal for you! (If you’re looking for a holiday home a Florida mortgage is definitely something to consider!)Loosely speaking, these interest rates can be divided between a fixed rate (an agreed rate that remains constant throughout the entire mortgage period) and a variable rate, which fluctuates according to market conditions.
Another thing to remain mindful of is the potential for mortgage fees to be charged in addition to the agreed sum; these vary in name and extent according to the lender and depend entirely on the type of mortgage you are applying for! Make sure that you are aware of these additional fees before you make any commitment as they can range from several hundred to several thousand pounds in addition to your loan.
As a final note, the issue of early repayment does need to be referenced; it seems entirely reasonable to be able to pay back the entire remaining sum of the mortgage prematurely and this is possible. However to do so does cost the lender money (in the form of interest) and early repayment penalties are designed to dissuade borrowers from doing this. The size of the penalty is usually a percentage of the original amount borrowed, and as such the feasibility of an early repayment diminishes relative to the period of repayment remaining. Early repayment should therefore be considered carefully, as early repayment with only a few years remaining could potentially cost a greater amount than the remaining interest.