Need-to-know Facts For First Time Mortgage Buyers

By Author: Lucy Carter
Total Articles: 102
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Getting a mortgage to become a property owner is one of the biggest financial commitments most people will make. There are a huge variety of mortgage types to choose from, and as a first time buyer understanding what will be best for you can be tricky.

The following article is aimed at arming people who are new to the property ladder with the crucial information that will minimise the risks involved in the mortgage process.

Your mortgage lender

Finding the right lender that suits you best is obviously the most important step when taking out a mortgage. Ensure you take your time in carefully researching the products available to you. With the strong competition on the marketplace, there are new and appealing offers arriving regularly. Watch out for unbelievable deals that seem too good to be true however - some lenders will tantalise with very low interest rates (your monthly repayments), but sting you in hidden costs or high premium rates. Be sure to read the fine print and have your potential lender thoroughly explain their mortgage packages. Also be aware that some lenders apply exorbitant early repayment ...
... costs to discourage you from changing to a better deal - what you want it to have the flexibility of being able to take advantage of remortgaging if suitable offers become available.

Interest and repayment costs

A mortgage payment includes both the interest rate you pay for your loan, and the capital fee which is the full amount you have borrowed. There are two main types of mortgage package to choose from in line with this. Interest only mortgages give you the benefit of an affordable monthly fee because you only pay the interest on your loan, but when the agreed mortgage term ends the hefty capital sum will need to be paid in one lump sum. This type of mortgage will entail you having some form of investment in your financial portfolio, such as an ISA, endowment or pension, to guarantee your ability to meet the capital fee. Repayment mortgages on the other hand even out your repayments - the monthly fee is calculated by dividing both your capital and interest payment, meaning when your mortgage term is completed the full sum owed to your lender will be paid in full. These types of mortgages generally see you paying most of the loan interest in the beginning of the term and then later more of the capital charge is added. It's a good idea to use a mortgage repayments calculator to be clear on the math so that you can decide what fits your finances best.

Mortgage brokers

Deciding which mortgage will be most suitable for you out of the wealth of products and competitive lenders on the marketplace can be difficult as a first time buyer, not to mention navigating the paperwork. If financing is not your forte, it might be a good idea to invest in a reputable mortgage broker. They can simplify the process and minimise the risks significantly. Not only do they have the industry contacts and experience to help you identify the mortgage that meets your circumstances (which will also save you loads of time in pain staking research and comparisons), they will make the paperwork legalities far easier to tackle. While mortgage brokers do charge 1% of your total loan value as their standard fee, it might be worth it in terms of expediency and peace of mind. What you definitely want to steer clear of however are 'tied-agents' - these types of brokers are affiliated with certain lenders whom they make commission from, so they cannot give you an impartial assessment on all that is on offer.

Closing costs

If you're not cautious, 'closing costs' can come as a very nasty shock. This term is a blanket phrase used for a number of miscellaneous fees incurred on top of the capital and interest rates for your mortgage. They fall under two categories - recurring and nonrecurring. The one-off charges includes those for your mortgage broker (if you've chosen one), the mandatory home inspection, the application with your lender and administration for processing, plus a variety of other fees such as for underwriting, a credit report and many more. Recurring closing costs, payable on a regular basis, include real estate taxes, private mortgage insurance (usually compulsory if you're mortgage deal entails a down payment of less than 20%) and homeowners insurance. These recurring payment amounts must be funded a year in advance, which is termed having your money 'in escrow'. It's important to have your lender explain all the charges for your mortgage in total so that your bank balance doesn't get any ugly surprises that you haven't budgeted for.

The above information covers the crucial issues to consider when looking at first time buyer mortgages. The main thing to remember is that deciding on the financing that will suit you best in making the dream of owning your own home a reality takes caution and thorough research.
Sean Raston - economics student and expert in first time buyer mortgages.