The process of buying a home is notoriously overwhelming. Especially for first-time buyers, mortgages are difficult to understand and the application process is complex. Understanding what steps you need to take for financial readiness and how to get a mortgage are equally important. We recommend all first-time buyers get up to speed on the fundamentals before they start talking with lenders.
We have put together a list of must-know terms and definitions into a mortgage guide for first-time buyers. Let Coreco’s guide to mortgage basics take the guesswork out of mortgages for you, and set you on a trajectory to affordable home-ownership.
Do you know the mortgage basics? We can help.
A loan that is taken out to purchase a home. Most mortgages run for 25 or 30 years and the borrower (homeowner) pays the lender (bank or building society) back in monthly installments. In addition to taking out a mortgage to purchase a property, the borrower must also put down a deposit that typically ranges from 5% to 25% of the total cost of the property.
A mortgage will cover the cost of the property after the deposit has been deducted. If the borrower can no longer afford to make payments towards the mortgage, the lender can repossess (take back) the property. There are a lot of things first-time buyers need to look out for when applying for a mortgage, so we also have a Mortgage Pitfall Guide to help buyers avoid common mistakes.
A mortgage broker is an intermediary between a borrower and a lender. They review the borrower’s income, financial goals, needs and wants, to find the best mortgage solution available. A reputable mortgage broker is an absolute essential for a first-time buyer, and has the skills to create a bespoke solution for each borrower. Read our 10 things made easier with a mortgage broker article to see how hiring a mortgage broker can drastically simplify the home buying process for first-time buyers and others.
Capital Repayment vs. Interest-Only
Capital repayment is the most common mortgage payment type, wherein the borrower repays the money owed plus interest in steady installments. Interest-only mortgages require the borrower to make monthly payments only on interest owed, not the principle.
Historically, buyers favoured interest-only mortgages because the monthly payment was lower. In recent years though, banks have granted fewer interest-only mortgages because many borrowers failed to set aside adequate funds to pay off the principle owed at the end of the mortgage term.
Fixed, Tracker, and Variable Interest Rates
Fixed interest rates stay the same over a set period of time to protect borrowers from volatile rate rises; however, the longer the fixed rate period lasts, the higher that interest rate will typically be. Tracker rates follow the Bank of England’s base rate and can move up and down depending on the economic climate. Variable interest rates are controlled by the lender and are typically low; however, the lender has the power to raise rates whenever they choose.
It is important to note that many mortgages available to first-time buyers are a combination of two or more of these interest rates. Buyers should work with a mortgage broker to decide what combination works best for them based on factors such as how long the borrower plans to be in the home and what per cent deposit the borrower will put down.
Knowledge is power when figuring out how to get a mortgage.
Fear of applying for a mortgage should not keep you from purchasing your dream home. Coreco’s team of award-winning mortgage brokers can find a mortgage solution that works for your budget and requirements. That way you can focus on finding the perfect home.
Contact us today to find out how to get a mortgage and how we can help turn your home ownership goals into reality.