Continued from page 1
Balloon Mortgages – popular in
US with homeowners who aren’t planning to stay in their new home for life, these mortgages are usually repayable in 5 – 7 years. They offer advantage of lower interest rates but disadvantage that if you are still in home after 5 or 7 year period you have to secure a new loan to pay off balloon mortgage!
Jumbo Mortgages or 'Non-Conforming' Mortgages – UK doesn’t have an equivalent of this US loan type. Basically in US there is a legislated purchase limit set each year by Federal National Mortgage Association (nicknamed Fannie Mae) and Federal Home Loan Mortgage Corporation (nicknamed Freddie Mac), a jumbo loan allows borrower to borrow over and above this amount but for privilege they will incur higher interest rates.
Step Two – having identified which type of mortgage probably suits you best you need to consider repayment methods and you basically have two to choose from: -
Interest Only – your monthly repayments to your lender cover only interest on loan meaning that nothing you pay back goes towards repaying borrowed amount; it is up to you to establish some form of savings vehicle over lifetime of loan period into which you pay sufficient sums to ensure you have enough capital at end of loan period to pay back amount borrowed. Capital & Interest – your monthly repayments are divided into an interest payment and a capital repayment. In early years of loan period most of monthly payment is swallowed up in interest but over time balance swaps and you start to pay off more of capital sum borrowed.
Step Three – Now you know which mortgage type and which repayment method you favour it’s time to find right lender! There are so many lenders offering such a variety of loans that at first it can seem a daunting prospect trying to determine which lender most suits you! However, depending on strength of your credit record, your current employment position, how much you would like to borrow and how much of a down payment you are in a position to make, some lenders will rule themselves out and some will seem more attractive to you.
It is possible to approach an independent mortgage broker or independent financial adviser to assist you with your search. Such an individual will examine product market place and apply his expertise to locating best lender to suit his client’s requirements. Most of these brokers are paid a commission by lender when you take out your mortgage; however some also charge you a fee. Make sure you find out from broker whether you will be charged as this is potentially an additional fee you could well do without!
Finally – there are a lot of informative sites and tools like mortgage calculators available on internet to provide you with, for example, an idea of how much you can borrow and most efficient borrowing and repayment method to suit you and also to give you an insight into lenders themselves.
By making use of all tools and resources available to you and by doing your home work you will be informed and this will strengthen your loan buying position.
