Mortgages
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Taking out a mortgage is one of the biggest financial commitments you can make, because of the amount you borrow and the time you take to repay it.
You may be able to afford the repayments now. But if you borrow a large amount over a long period think what may happen if, for example, your income falls or you lose your job. Or what if interest rates rise and your monthly repayments go up?
Bear in mind that a mortgage is a loan secured against your home, so if you fall behind in your mortgage payments, the bank or building society can sell your home to get back its money.
How to repay your mortgage
You can choose to repay your mortgage in the following ways:
- repayment mortgage: your monthly payment is split between paying off the loan and paying off the interest you owe on the loan; or
- interest-only mortgage: your monthly payment pays only the interest charges on your loan, and you must arrange some other way to repay the loan. (This will usually mean having an investment or savings plan to build up a lump sum to pay off the mortgage when the term ends);
- a combination of the two.
Mortgage term
The standard mortgage term is 25 years, but you can choose a different term if it suits you and the lender agrees that you can afford it.
With a shorter term, you’ll have higher monthly payments but pay less in total. With a longer term, you’ll pay less each month but more in total.
Beware of having a mortgage term that continues past the age you plan to retire unless you’re sure you’ll be able to afford the payments then.
Mortgage research
Every day new mortgages are offered with many different lenders and many different types.
Basically there are the two types:– Interest Only Mortgages or Capital Repayment Mortgages.
Within these however, there are different styles of mortgage for example:-
- Fixed rates
- Variable Rates
- Capped Rates
- Capped and Collared
In addition to the above, there are many different types of fees, including a fee to purchase the rate, survey fees and legal costs
You should therefore speak with a specialist who understands these terms, can analyse your financial position and affordability and can then recommend an appropriate mortgage for you.
Active Wealth Ltd provide mortgage services. Please Contact Us directly regarding your requirements.
Affording Your Mortgage
You can afford your mortgage now, but think about how you’d manage if your, or your partner’s, income fell or if interest rates increased.
How your income could fall
Your income could fall if you or your partner:
- lost your job(s), or had to take a drop in income
- stopped work to have a child or to look after a dependant
- became ill and couldn’t work
How your payments could increase
Interest rate increases
Your mortgage payments could go up if interest rates increase. Mortgage interest rates are related to the interest rate set by the Bank of England and your lender will usually apply some or all of any increase to your mortgage.
Unless you have a fixed rate for the full term of your mortgage, interest rate increases will affect you.
After a period of staying low and stable, interest rates have risen steadily over the last few years. In the past, interest rates rose much more rapidly, from 7.5% to 15% in just a few years. Interest rate rises could increase your monthly payments considerably, making them difficult to afford.
Special rates ending
Often, special rates are for a set period only, so when this ends your payment will change – it could be much higher.