mortgage, home loan

Buying a house is a big financial commitment, with the process of finding and getting the right mortgage one of the biggest causes of stress.

However, with a bit of research, you can take some of the difficulty out of the process. Here’s a quick guide to help you with the process.

The home loan market since the recession has made it harder for first-time buyers to get loans as the amounts being lent have decreased. 100% loans (borrowing 100% of the value of the property) are now a thing of the past, meaning that you’ll need to save up a decent deposit before lenders will give you the rest.

So one of the most important things you can do before applying for a home loan is to save seriously (you may need to put down a deposit of up to 25%) and make sure you have a good credit score.

Decide what type of loan you’d like – interest only or repayment? With an interest only loan, you only pay back the interest on the amount borrowed, so if you borrow £250,000 over 25 years, you’ll still owe that amount at the end of the lending period.

Interest-only loans are generally cheaper than repayment mortgages. Here, your monthly payment goes towards paying off the whole amount. Generally, these are seen as the better alternative, as at least the money you’re paying is going towards clearing your debt. Santander offer a range of mortgages – take a look at their website for details of rates.

Fixed or variable rate interest? Having a fixed rate loan means that your repayments will be fixed for a certain term (usually up to five years) and the advantage of this is that you are protected from any interest rate rises.

However, this protection usually costs more in terms of higher rates than those offered if you went for a variable rate loan. Variable rate loans mean the rate of interest paid will change over time and this can be both beneficial (if interest rates drop) and damaging (if they increase).

When searching get a broker. A broker who’s ‘whole of market’ will have to look at all the options available, rather than representing just selected lenders. These brokers are more likely to find short-lived deals than you are and so help you grab the good deals before they end.

SBI!

Mortgage -a guide (contributed article)