The Mortgage.

The most important part of buying a property is obviously the funding. Before you even start the house hunting process it is advisable to look into getting a mortgage. As I have said previously, you need to work out how much you can afford to spend on a property and whether or not you can borrow the amount you would like to. SEE THE SECTION..HOW MUCH CAN I AFFORD?

You then must think about what type of mortgage you want and how long do you want it for.

There are thousands of different mortgages on the market to choose from such as, higher lending, lower lending, poor credit, self assessed, guaranteed, split equity and so on, so it would be impractical to cover them all so I will just go through the main types of mortgage.

PRODUCT FEE

Some mortgages will have product fees which means you have to buy the mortgage from the broker, the prices are normally from about £200 up to £1000. The advantage of getting a mortgage with a product fee is usually that you will get a much better interest rate. The rate can be up to 3% lower than a product with no fee. This fee will normally be added to the mortgage so you won't even have an up front bill to pay. On a quick calculation I found that i could save about £45 per month by opting for a mortgage with a £299 fee. The interest rate was reduced from 7.4% down to 6.3%. These offers do change on a daily basis so you must talk to mortgage brokers about up to date offers.

Your deposit will also affect the interest rate, normally the bigger the deposit, the lower the interest rate.


REPAYMENT MORTGAGE

The repayment mortgage is probably the best one to go for as the grand total of the loan is steadily payed off. Each month you pay an installment of interest and a small bit off your mortgage amount. After the set amount of years, the mortgage is payed in full.

INTEREST ONLY


With this type of mortgage you only pay the monthly interest charge. This will make your monthly outgoings a lot cheaper but, after the set mortgage time, e.g, 25 years or 30 years, you will be sent a bill for the original amount borrowed. Back in the 60's the average price for a house was around £3000, so people who took out one of these types of mortgage were in the long run, better off. Now however the average house price is about £125,000, so unless you think that a bill for £100,000+ in thirty years time will be easy to pay, I'd probably opt for a repayment mortgage.

The interest rate will be set by a number of factors, product fee, size of deposit, size of loan, the bank of England base rate and weather its a TRACKER or FIXED RATE mortgage.

TRACKER MORTGAGE

The interest rate in a tracker mortgage will follow the ups and downs of the Bank of England's base rate. If, for example, the base rate is 5% then a tracker will set your interest rate at about 1.2 above it. In this example your interest rate would be 6.2% If interest rates went down, then so would your mortgage payments. However, if they went up your interest rate would follow it up to.

FIXED RATE

With the fixed rate mortgage you can freeze the interests rate for the number of years that you choose. If the base rate suddenly shoots up, remembering back in the 80's when the base rate went up to around 14%, your monthly bill will not be affected. You will carry on paying at the rate you chose at the start of the mortgage agreement. This is a much safer option if you don't know what the base rate is going to do. The only down side is that if the base rate drops, you will be paying more than if you were on a tracker, but lets face it, it can go a lot further up than it can go down. With a fixed rate mortgage you will be locked into that offer for a set number of years, normally 3 or 5 years.

After you have chosen your mortgage the broker will do a quick credit rating check and then print off the details as a 'proof of mortgage offer'. This offer is usually valid for about 6 months so you don't have to rush into a purchase. If the base rate goes up after the mortgage offer, your interest rate will not be affected. If it goes down, sometimes the lender will reduce the interest on your offer. You can't loose! This offer is not legally binding so don't panic if you decide not to take up the offer.