Thursday, 2 December 2010

Buying a home in England and Wales - What every home buyer should know

Buying a home
Buying your home could be the most important purchase you ever make  Here’s some practical tips to make the process run smoothly

Key steps when planning to buy a home

When you're buying a home for the first time, it can be difficult to know where to start. Here are a few things to keep in mind before you start house hunting:

Make sure you’ve fully thought through why it makes sense for you financially.
Consider if you'll still be able to manage your finances if interest rates go up.
Get a solicitor or licensed conveyancer to help guide you through the legal process. They’ll explain what’s happening and what to expect next, so make sure they’re someone you feel comfortable talking to.
Your new home is the beginning of a new chapter in your life. Think beyond the move - for example, insurance and savings for a rainy day.
Think ahead to take out the stresses. Planning your new life in a new home is something to enjoy!

Mortgages - Understanding, choosing and managing your mortgage
Essential mortgage information
Choosing the right mortgage can be daunting. Your lender or your financial adviser will advise you how much you can afford to pay towards a mortgage each month. Questions to ask yourself before applying for a mortgage include how many years you'll need the mortgage for, and how you will want to pay back your mortgage. The most important thing is to be clear about your financial priorities – this will help your adviser work out what kind of mortgage is best for you.

What is a mortgage?

A mortgage is a loan made to you by a lender so you can purchase a property. You’ll pay interest on the mortgage and  your lender will use your home as security for the loan. This means that your lender may repossess your home if you do not keep up repayments on your mortgage.

Sounds simple - but once you start looking into it, a mortgage is a bit more complicated than it might seem. Plus, in today's changeable economic climate, the range of mortgages is continually being updated and extended.

That's why you need to learn as much as you can about mortgages and what's involved before you sign on the dotted line.

Considerations when choosing a mortgage product

When you begin searching for mortgage, you should ask yourself some key questions:
What do the interest rates mean?
How do I want to repay this loan?
How long do I want to take to repay the mortgage (the term)?
What are early repayment charges?
Which type of mortgage is right for me?

Understanding interest rates

You will often see two rates quoted by lenders - the 'applied' rate and the 'annual percentage rate (APR)'. For example:"The applied rate for the term of the mortgage 5.19%. The overall cost for comparison is 6.2% APR."

The applied rate is the rate of interest which the lender uses to calculate the amount you actually owe them. It will not be the same as the APR as it does not include all charges.

You should use the APR to compare the true overall cost of your loan. For example, if you find two mortgages with the same applied rate and the same mortgage term but with different APRs, then you know the one with the higher APR has higher charges. The lower the APR, the better, so be sure you do your research.

Repaying your mortgage

With a mortgage, you have to repay the capital (the amount you borrow) and the interest charged by the lender. You’ll pay interest on the capital outstanding until the mortgage is fully repaid. The usual and easiest way of making your payments is by Direct Debit, and most lenders will let you choose a mortgage payment date that suits you.

You’ll need to think about the number of years you want to repay your mortgage over – generally a mortgage term can be anywhere from 1 to 40 years. If you choose a longer term, your monthly payments will be lower, but you’ll pay more interest overall. On the other hand, if you pay over a shorter period, your monthly costs will be higher, but you’ll pay less interest in total.

When considering how long you want your mortgage to run, you should bear in mind how your income may change in the future. You should also consider how you're planning to repay your mortgage. Many lenders will only consider lending to people whose mortgage term ends before they reach a certain age such as 75. Some specialist mortgage lenders will lend to people who are past retirement age, but they will generally require significant deposits.

Note: If you are taking out a joint mortgage with someone else, you should also consider taking out a life insurance policy that will pay off the outstanding mortgage amount if one of the mortgage payers dies.

Early repayment charges

Some mortgage loans carry what's known as an early repayment charge (ERC). This is a charge you many have to pay your lender if you break off a mortgage deal (e.g. by paying it off early or moving to a different lender).


If you're an existing homeowner and would like to switch your mortgage, to another lender entirely, you'll need to remortgage. When you do, you may be able to borrow more at the same time as switching your mortgage. But be careful since early repayment charges can apply on some deals.

Remember, interest rates can go up, as well as down, so be sure you are in a financially stable position to handle these fluctuations.

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