Monday, 13 July 2009

Mortgages Explained

posted by debts.org at 04:49

A simple guide to mortgages

Applying for a mortgage used to be simple. After an interview with the manager of the building society, and a few simple questions, you would find out pretty quickly if the mortgage had been granted and on what terms. Nowadays there are plenty more options, and you can trawl price comparison sites on the internet, plus a host of high street banks and building societies to find the right deal.If you choose wisely, you can save yourself hundreds of pounds a month, but if you get it wrong, you could end up paying thousands of pounds over the odds. If you have been unfortunate enough to choose the wrong deal, you may be able to change it, but if you are already in arrears, contact a debts specialist company who can help you to make new arrangements, such as a debt management plan or an individual voluntary arrangement.

Mortgage information basics

A mortgage is a secured loan against your property, which means the lender can repossess your home if you don´t keep up with monthly payments. Lenders will normally offer you an initial deal, which will include a competitive interest rate over a set amount of time, such as 6 months to a year. Once the initial period comes to an end, you will pay the standard variable rate, which is normally much higher than your first deal.You can try to change your mortgage deal before the initial deal period is up, and avoid paying extra interest charges, but check the terms and conditions in the mortgage deal, as some bank and building societies are loathe to do this. Many homeowners find themselves in debt after taking a mortgage with an enticing opening deal rate, only to find after a set amount of time, when the deal ends, the repayments are unmanageable. If you have any questions or queries, or if you want advice from a debts counsellor you should contact debts.org, who may be able to help you with a debt management plan or an Individual Voluntary Arrangement.The Bank of England base rate gives an indication of the cost of borrowing, as most mortgage rates tend to go up and down in a similar fashion.

Fixed mortgage rates to avoid debt problems

Fixed mortgage rates stay at a certain level for the entirety of the mortgage deal. Commonly offered as 2,3,5,7 and 10 year rates, some lenders will fix a rate for up to 25 years. Usually, the longer the fixed rate is applicable, the higher that rate will be.

Advantages of fixed rate mortgages

With a fixed rate mortgage you will know what your monthly repayments are, which gives you security and the ability to budget. Obviously if interest rates do fall, you will miss out on the opportunity to make additional savings on your monthly repayments. If you are struggling with any type of debt problems including mortgage repayments, credit card debts, car loan debts or even repossession, debts.org can help. Tracker mortgage rates and debt management plans
Tracker mortgages track the Bank of England base rate, and set their rate a certain numbers above or below this. Repayments come down if the base rate goes down and up if the base rate rises. But if you are considering a tracker mortgage, be cautious. Some lenders freeze tracker rates when the base rate falls below a certain level. When experts expect the base rate to come down in the near future, tracker rates should carry a slightly higher premium to cover any risk to the lender. You may be thinking of remortgaging to relieve your debt problems. Before you remortgage, contact debts.org , a debt specialist company which may be able to find you a more suitable debt solution which will work out cheaper and more viable. Debt management plans and Individual Voluntary Arrangements are two options which may be available to you.

Variable mortgage rates and how they work

Variable mortgage rates can go up or down at different times. In addition to the standard variable rate, you can get discounted variable rate deals which usually offer big discounts at the beginning, but can creep up when interest rates rise. Make sure you understand any mortgage deal before you sign on the dotted line, and always read the small print.

Offset mortgages for savers

Offset mortgages work well if you have a lot of savings. Offset mortgages reduce the amount of interest you owe on borrowed money, by offsetting them against your savings balance. If you have a mortgage of £50,000 for example and savings of £10,000 you would only be charged interest on £40,000. Offset mortgage rate interest is usually higher than on standard mortgage deals, and is only worth considering if you have savings of at least 10% of your mortgage. Current account mortgages work along the same lines, but you have to accept that, until the mortgage is paid off, you will always see a minus amount on your balance, which is off-putting to a lot of people. If you are planning to remortgage because of debt problems, seek the advice of a professional debt specialist company before going any further. There may be an easier way to reduce your debts, without having to remortgage.

Guide to mortgage fees

Once you take out a mortgage, it is more complicated than simply paying back interest on a loan. Other costs may include arrangement fees for setting up the mortgage, valuation fees to cover the cost of valuing or revaluing the property and legal fees owed to the solicitor who has worked on your behalf. Also if you complete on the loan/mortgage before the arranged time period is up, you may have to pay early redemption fees. Check with your bank before taking a mortgage or remortgage deal, exactly what the additional costs are.

Mortgage overpayments and how this can work for me

Most mortgage deals allow you to over-pay by up to 10% of the balance every year, but if you intend paying off more than that, opt for a more flexible deal at the outset. Some mortgage and remortgage deals are more flexible than others, and are suited to self-employed homeowners whose income may fluctuate.

What is a ´drop-lock´ mortgage

A ´drop-lock´ mortgage begins as a tracker, but allows homeowners to ´drop´ into a fixed rate option if interest rates fall. The homeowner can then fix the rate, but this may well be permanent after the decision has been made. Most borrowers decide to ´drop´ into a fixed rate when they think the interest rates have gone as low as they will go.

Mortgage terms explained

Usually repaid over 25 years, spreading our repayments over a long term makes them more affordable each month. But where possible, set the term below 25 years if you can easily afford the repayments. This term may also be reduced or extended, depending on the lender´s terms and conditions. You will be mortgage-free sooner if you can reduce the number of years in which to pay the loan off. Some lenders offer a high rate to change the terms and conditions of the mortgage, so this is something to be clear about when you first take the mortgage.

Mortgage arrears and debt specialist companies Mortgage arrears are becoming increasingly common. If you find yourself in arrears, or if you think you may be facing problems in the near future, contact a specialist debt company such as debts.org, who will explain your options in a friendly and professional way. You may be able to take advantage of a debt management plan or an individual voluntary arrangement to improve your finances without having to remortgage or face repossession of your home. We can help you arrange an alternative repayment plan so that you avoid house repossession.

Labels: debt specialist, homeowners, interest rates