Buying your first home can simultaneously be the most exhilarating and the most terrifying decision you will ever make. On the one hand, you are branching out into the world of independence, where you can make your own rules.
However, unfamiliar jargon and advice from friends and family flying in from all directions can send stress levels rocketing. But regardless of whether you are buying your first property on your own, or you and your partner have decided to take the next step together, there are a number of issues to consider.
Firstly, make sure you do your homework and research the marketplace and its associated terminology. Make sure you fully understand the level of commitment you are considering entering by researching what different rates of interest means to your mortgage. Also decide whether to opt for a mortgage with a fixed or variable rate and seek professional advice if you're unsure on any aspect of mortgages before you take the next step.
Fundamentally, a mortgage is a sum of money that you borrow from a mortgage lender – bank, high street lender or building society, for example – and used to help pay for your chosen property. Usually it is made up of two elements: the capital, i.e. the amount of money you have borrowed; and the interest, i.e. the amount you are charged by your mortgage lender to repay the loan.
Although there are various different names for the mortgage packages on offer, there are two basic types: repayment mortgages and interest-only mortgages.
Repayment mortgages see each monthly payment go towards paying off the underlying debt, as well as the interest on the loan. At the end of the term, the mortgage is cleared.
Interest-only mortgages, on the other hand, expect you to pay off the loan’s interest, not the loan itself. At the end of the mortgage term, however, you are expected to repay the capital. These types of mortgages are particularly advantageous for first-time buyers, since they can be cheaper.
Additionally, opting for a fixed rate mortgage, which ensures the interest rate on the package is set for an agreed period, is considered ideal for those new to the property market, since they can plan ahead, as well as easily work to a set budget.
It is also crucial that you work out how much you can afford to borrow. Many financial institutions offer mortgage calculators, where you can work out exactly the amount you can apply for based on factors like your income and monthly outgoings. Generally speaking, mortgage lenders will lend you around three times your annual earnings, or if buying with a partner, two and a half times your joint income. However, the levels of lending differ between lenders, so it's always prudent to check.
Property prices are currently falling, meaning first time buyers are currently in an advantageous position to buy, but make sure to do your research before signing up for a first time buyer mortgage.
About Author:
Disclaimer:
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.