You need to go back to the basics and re-look at mortgages and how they work. You can then start looking at the type of mortgage that best suits your circumstances and take it from there.
So, what is a mortgage? Basically, a mortgage is a loan for the purchase of a property which you pay back over a set period of time. The loan is secured against the property, so should you stop making the monthly repayments, your house can be repossessed in order to settle the outstanding debt.
While that sounds a bit scary, you should note that should you get in to financial difficulty, the key is to speak to your mortgage lender as quickly as possible so that situation can be resolved.
A mortgage typically runs for 25 years, but it can shorter or longer depending on your individual circumstances. When you take out a mortgage, the amount you borrow is called the ?capital?. You have to repay the capital as well as the interest charged on the capital.
There are basically two ways that you can repay the capital, by a Repayment method or by Interest Only.
With the Repayment method, every time you make a payment, you are paying off a bit of the capital and a bit of the interest. At the end of the mortgage term, this means that everything will be paid off and the property is yours.
With the Interest Only method, you are doing what it says on the tin ? paying off the interest only element of the borrowing. You will still need to find the capital amount at the end of the term to be mortgage free and actually own the property.
To pay off the capital amount, you will need to have some sort of investment fund. In a perfect world, by the time the interest is paid off, your investment fund should have been working really hard and have given you enough money to pay off the capital.
However, if your investments don't perform well, you could find yourself at the end of the mortgage term with a cash shortfall that you will need to find. If you haven't got the money, your home could be repossessed.
Therefore, do be aware that interest only mortgages can be risky if your investments fail to do their job properly.
Finally, just a brief word on endowment mortgages. These are a form of an Interest Only mortgage. The endowment element is a combination of savings, investments and life cover all lumped together in to an insurance policy.
Endowment mortgages used to work so that at the end of your mortgage term, you could almost be certain that the endowment policy would pay off the capital. However, with investment returns falling in recent years, many people will not have enough money to pay off their capital at the end of their mortgage term. They will have to find it elsewhere ? or they could lose their home.
The general consensus now is that you should avoid taking out endowment mortgages and that is why there are so few of them in the mortgage market place.
The recent stabilisation of house prices coupled with the increasingly stringent lending standards may give the impression that first time homebuyers with little or no savings have no option but to forego their plans of buying property. Indeed, data provided by Nationwide showed that the average first time buyer in the UK has to use 49% of their post tax salary towards mortgage payments - the highest level since 1990. But according to a recent survey, the current climate in the UK does not deter many property investors from acquiring their first property even if it meant purchasing them somewhere else. A significant number of people are making their first property purchase abroad.
According to many property experts, the rising cost of mortgages and excessively expensive property prices have compelled some first time buyers to purchase their first investment property abroad.
Fifty percent of these first time buyers say they would buy overseas so they could get on the property ladder. In addition to this, the survey also found that the number of first-time buyers who are thinking of investing in property abroad has increased twofold in merely 10 months. France in particular provides a secure investment for first time buyers because of the strength of its property market. Experts agree that the outlook for the French property investment remains optimistic giving investors a better chance of earning solid returns on their investments.
The survey also reveals that countries at their peak are seeing property values rising by up to 30% per annum. This allows property investors to start taking in a weekly or monthly profit almost immediately from the rental of their property abroad which they can use to put back into a deposit for a property in the UK.
For property investors who have decided to get on the property ladder, experts provide the following essential advice to help make their climb a much easier task:
* Save up for that important deposit. The end of the 100% mortgage spelled trouble for many homebuyers as they are now obliged to put aside a significant deposit. Industry experts suggest drawing up a budget for expenditures, opening a savings account and depositing a fixed amount each month.
* Opt for shared equity. This type of scheme allows homebuyers to buy a property at a discounted price (for example 90% of the purchase price) with someone else such as a property developer holding the second mortgage on the property for the other 10%. When the property is eventually sold, they would get 10% of the property's new value.
* Buy property using shared ownership. Getting on the property ladder is also possible through a shared ownership basis. For instance, homebuyers could own 75% while someone else, usually a Housing Association, owns the rest. Mortgage payments can be paid on the 75% and rent on the other 25%. This setup also offers buyers the option of buying more at set times.
As with any other investment, it's best to seek the help of qualified professionals who can provide homebuyers with the best advice and at the same time protect their interests and make the purchase a stress-free experience.
Both James Miller & are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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