The process of buying your first home is an adventure full of excitement and worries. First time buyers are very perplexed when it comes to the financial process since it requires and substantial investment. As a first time buyer, they have less familiarity with the mortgage process, legal obligation and requirements. This can mislead them into big problems without their knowledge. The first time buyer mortgage process is also a process one needs to understand to make sure best options are picked.
Basics of Mortgage
Mortgages are long term loans specifically for buying a house. The average time for repayment in the UK is 25 years, but it may be shorter or longer depending on the bank. The eligibility of the mortgage amount depends on the value of the home you are planning on buying. It serves as security for borrowing the money from the banks. Moreover, as with other loans, you need to add interest on top of the mortgage amount. This rate depends upon the mortgage plan you choose. This requires comparing many mortgage options.
Loan To Value (LTV) ratio
You get a better mortgage deal if you are ready to deposit a higher percentage of the value of the house you are buying. If you deposit £20,000 for a property worth £200,000, it is 10%. The ratio of your deposit and remaining value of the property is Loan to Value (LTV) ratio. Lower the ratio, the cheaper the mortgage rates.
There are online mortgage calculators which offer to calculate the amount of loan you could get with your salary, expenses and deposit. Other calculators can calculate monthly repayments when you enter the value of the home, deposit and mortgage repayment duration.
Type of mortgage payment
When you are looking for mortgages, you will come across “repayment” and “interest-only” mortgages.
On repayment mortgage, you will pay interest and a part of mortgage amount every month. With an interest-only mortgage, it is a requirement that you only pay the interest on the mortgage through the mortgage payment period. You can choose to pay part of mortgage during the period to completely pay off the mortgage. If you fail to pay the entire mortgage, it is considered outstanding mortgage and can be subject to seize.
Fixed rate or variable rate mortgages
As they are obvious with their names, fixed rate mortgage have fixed interest rates. However, they are often for a short period of one to ten years. Variable mortgage interest rates are dependable on the bank you choose which can be same or below the standard rate of Bank of England.
First-time buyers have limited number of choices because they often only have the ability to make small deposits. There are some schemes from the government that help them get mortgages with lower rates. However, they have eligibility requirements that you have to fulfil. Your best option to get a good deal on a mortgage is to be informed about mortgage policies.
Consider the rates, your income and expenses as you compare mortgage rates from different banks and lenders. There are also various government scheme to help first-time home buyers with tax-free savings and bonuses. Consider them if you are looking to buy a new home in the future.