What to look for in a first time mortgage
What to look for in a first time mortgage
May 16th, 2010
First time mortgages can be daunting for a new home buyer, but they are quite easy to understand when the home buyer knows some of the basic concepts. Mortgages and home loans tend to be very much cheaper than other loans. This is for three basic reasons. Firstly the loan is securitised, which means that if the loan is not repaid then the home loan lender is able to repossess and sell the house. This not only means that a lender is very likely to get all their money back, but that a borrower in most cases will prioritise their mortgage payments over other loans and many other necessities, and so will be unlikely to get in a default situation.
A second reason is that the loan is for a longer term, which means that the interest that is charged will actually be a lot more than a shorter term loan. Thirdly the cost of administering the loan per dollar that is advanced is far less than for other loans, which can be passed on as a lower interest rate.
The term of the loan is very important. This can make a big difference in how much money is paid over the lifetime of the loan, as well as the amount of money that is paid in the monthly repayments. Essentially most mortgage terms were twenty five years, which meant that by the time that most couples had retired then they had paid off their mortgage. However mortgage companies have become more flexible in their mortgage terms. Broadly put a longer mortgage term can mean lower interest repayments, but a later retirement and more interest paid over the term of the loan.
A step beyond asking for an extended mortgage term is getting an interest only mortgage. These are mortgages that will only ask for interest back and will let the balance stay undisturbed. Most interest only mortgages that are extended to home buyers are interest only for a period of a few years, and will revert back to a repayment mortgage. This will mean some help at the beginning in return for a higher total interest charge and higher repayments later.
Mortgage insurance is an insurance policy that is taken out by the home owner and covers the lender against any default. The loan to value ratio is an important part of whether this insurance is insisted upon, as if the loan is 80% or more of the value of the house it is very likely that the home owner will have to pay this insurance as part of the terms of the mortgage.
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