Taking out a mortgage may be the biggest financial commitment you ever make, so before you sign on the dotted line, it’s important that you know all the facts and are able to make an informed decision. To get you more clued up on these home loans, here’s your essential guide to getting a mortgage.
The different types of loan
The two main types of mortgage available are repayment and interest-only. If you opt for a repayment loan, your monthly bills will go towards paying off both the interest and the capital. This means that by the time your mortgage term comes to an end, you will have cleared the full amount. In contrast, an interest-only arrangement means you will only pay the interest off and, at the end of your deal, you will be left with the capital sum to clear in one go. This could be paid off from your savings or an insurance policy that you got at the same time as your home loan. If you go for the latter option, it’s crucial that you have a plan in place for repaying the lump sum at the end of your agreement, otherwise you risk losing your home.
You will also have to choose between a fixed or variable-rate deal. Fixed-rate loans remain the same for a specified period of time (usually two to five years), while variable-rate agreements can move up or down in line with the national base rate of interest.
Protecting your repayments
If you fail to keep up with your loan repayments, there is a danger that you will lose your house. However, there are ways to mitigate this risk. For example, you may want to consider taking out mortgage protection cover. This form of life insurance can help you meet your repayments if you are prevented from working because you lose your job or suffer an illness or injury. It’s easy to get more information on this type cover over the web. For example, you can access further details on mortgage insurance from Chill.ie.
Deciding what you can afford
Especially if you see a property that you fall in love with, you might be tempted to stretch your budget to the limit. However, it’s important to be sensible when you’re deciding how much money to borrow. Bear in mind that as well as meeting these monthly repayments, you will have other unavoidable expenses to cover, including council tax, insurance and utility bills. You may also face maintenance costs. Bear in mind that banks or building societies will ask to see evidence of your income and outgoings when they are deciding how much they are prepared to lend you.
It’s important to note that the bigger the deposit you put down on your property, the more affordable your repayments are likely to be. Lenders tend to provide more competitive interest rates when the loan to value ratio is lower. For example, if you are able to put down a 20 per cent deposit, you should find you are able to access cheaper deals than if you put down a 10 per cent lump sum.
How to apply
When applying for these loans, you can go direct to banks or building societies or you can approach mortgage brokers or independent advisors, who will compare the market on your behalf and guide you through the process.
Making sure you’re in the know when it comes to mortgages can help you avoid costly mistakes and mean you’re able to buy your home with more confidence.