Applying for a mortgage can be a great challenge and a big first step to get your place on the property ladder. It doesn’t have to be so intimidating. Here is our quick and simple guide on what a mortgage is, what types are available and how they work.
What is a mortgage?
A mortgage is a loan that is obtained from a provider and is used to buy land or property.
When it comes to liquidating your mortgage, your payments will be made from the value of the loan (the “capital”) and the interest on the value of the loan (the “interest”). This means that it is important to consider the type of interest rate you want to request and the financial deposit you can provide to guarantee your loan. A higher lump sum will often work to reduce your interest rate and find a balance between a manageable down payment and a solid interest rate is an important part of the decision making process.
Once they agree with the value of the mortgage, the provider will work with you to establish a payment schedule that suits your work life and is manageable. This will be secured by a “guarantee”, which will be a property or an asset of your property that can be recovered if it is not kept up to date with your refunds.
What should I know before requesting one?
Before you decide to take a mortgage, it is important to understand exactly what loan value will work for you and what you need it for. This requires having a critical and realistic view of the property or land that you intend to buy and determine the best type of mortgage to help you.
This needs you to know what types of mortgage there are. Although the list can be very long, there are three different types.
- Fixed-rate mortgages: they require you to pay the same amount per month during the loan period, which isolates you from negative (and sometimes positive) changes in the market. These are considered safe and let you know how much you leave each month so you can plan accordingly for the rest of your mortgage.
- Interest mortgages only: these give you the option of allowing you to pay only the interest on your loan for a period of time agreed at the beginning of the mortgage, before paying the mortgage amount at one time at the end of the process. This can result in a longer loan and can make the process more manageable for applicants who need additional flexibility or may rely on reliable income in the future.
The opposite of this is seen in repayment mortgages that ask for a higher interest payment in advance, which steadily decreases over the duration of the loan; They allow you to access better deals as your property (or “equity”) increases in your home.
- Adjustable rate: change the interest rate on your mortgage over the duration of your loan. This can help first-time buyers looking to buy large houses or those who plan to resell or take out another mortgage before the end of the adjustable mortgage period.
If you would like more information on how to request or manage a mortgage and need direct help, do not hesitate to contact our live chat at Good Finance and let us know exactly what you need.