The essential guide to finding the best mortgage

Foreclosure is a serious problem across the USA. In our quest to inform and help guard against foreclosure fraud, we have put together this guide to finding the best mortgage deals.

Let’s start by taking a look at the definition of a mortgage- this is a loan taken out against the value of your home which is repayable over the mortgage term, usually 25 years. If you are unable to keep up with your mortgage payments, the lender can repossess your home. Several guides exist to help you calculate your borrowing limit.

There are four basic mortgage types which depend on your purpose for borrowing.

Home Movers– for people who want to move to a new home. The mortgage can be used to keep your cash flow positive if you have a high deposit. Cash from the sale can be used to pay off the existing mortgage with the remaining equity put against your new home. Some mortgages can be transferred to a new home whilst others incur exit fees.

First time buyers– these mortgages require a lower deposit but typically have higher interest rates. Help to Buy schemes are available. These provide an equity loan of up to 20% of a home’s value which is interest free for five years. They also allow buyers to access mortgages with lower Loan to Value ratios (LTVs) and lower interest rates.

Buy-to Let – these mortgage loans are for homes purchased to let out. They require a deposit of around 25%. The tenants’ rent should cover the monthly mortgage payments, costs and provide you with a profit. Most Buy-to-Let mortgages are interest only so you must ensure you have enough capital to pay off the loan borrowed at the end of the term. With a repayment loan, the monthly payments are higher but you do own the property at the end of the term.

Remortgaging– this means switching to a new provider at the end of your mortgage promotional period and using the new mortgage to pay off the old one. By setting your interest rates at a new, more favourable rate, thousands of pounds can be saved.

Interest rates can be fixed, variable or tracker

Fixed rate mortgages are set at the beginning of your mortgage plan for up to ten years. Fixed rate monthly payments do not vary regardless of changes in the standard variable rate or the Bank’s base rate. Interest rates tend to be higher than variable ones but they provide stability in your monthly budget.

Variable rate mortgages usually provide the lowest interest rates. If interest rates drop, so will your repayments but equally the rate can also go up. If you use this product, do ensure you can accommodate any rises in monthly payments.

Tracker mortgages follow the Bank’s base rate so payments can rise up to a set point.

In short, shop around and make sure you can repay your mortgage monthly before taking out a loan. Also, check the small print regarding any early repayment fees.

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