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Interest only Mortgages

10:17 AM, July 15, 2008 .. Posted in mortgages .. Link

 

Interest only mortgage deals are becoming increasingly popular with first-time buyers looking to keep their monthly repayments down. First of all, you need to know how an interest only mortgage works It's easy to be led into the 'borrow more, pay less' promise of interest-only mortgages. Are these deals as good as they look? Is taking out an interest-only mortgage really the best way to cut your monthly payments? Or are you embarking on a dangerous short-term strategy with costly long-term consequences? With any mortgage, you have to pay back the original capital debt and you have to pay interest on that debt. With a repayment mortgage, you spread the repayment of the capital debt and the interest into even monthly payments over the course of the mortgage term. When you take out a 25-year mortgage, at the end of those 25 years, your mortgage is guaranteed to be paid off. When you take out an interest-only mortgage, you only pay back the interest on the mortgage every month. This looks good. However, there is a problem, the capital debt is still outstanding. In other words, you haven't actually paid back any of the amount you originally borrowed. An interest only mortgage is an option regarding the repayment of your mortgage loan. This means that your monthly payments will only cover the interest that you are paying on the loan. Because of this you are never paying off the original sum and when you reach the end of your mortgage term the amount that you will owe the mortgage lender will be unchanged. This sum of money will still be outstanding at the end of the mortgage period, so you will need to have made provisions to finance a lump sum payment for this entire amount. This could be achieved by the following examples:
1.      Making regular payments into a savings or other investment every month.   
2.      Converting to a repayment mortgage during the term of the original interest only  mortgage. This is suitable if currently your earnings are at a lower level but are expected to increase in the future as it keeps the monthly payments down at the beginning and then allows you to pay higher monthly repayments later on a repayment mortgage.
3.      Attaining a lump sum from another source.
4.      Selling the mortgaged property itself to be able to pay off the original loan taken out for it.


SHARED OWNERSHIP MORTGAGES

2:07 PM, May 7, 2008 .. Posted in mortgages .. Link

SHARED OWNERSHIP MORTGAGES

Shared ownership mortgages can also be called part rent or part buy. It can be difficult and time consuming trying to find the best in the UK market on your own.If you would like to own your own home, but cannot afford to buy on the open market, shared ownership could be for you. You will have sole occupancy rights and you do not have to share your home with anyone else. Purchasing a property with a housing association using a shared ownership mortgage is a popular method for first time buyers as getting on the property ladder becomes increasingly more difficult to achieve.

The scheme allows buyers to purchase 25 to 50 percent of the property and the housing association will own the rest. Also, you would have to rent the other portion of the property from the housing association whilst paying your portion of the shared mortgage. One of the advantages of this scheme is that you only need purchase a reasonably small part of the property initially and you can increase your shares by purchasing additional shares from the housing association later on.

The term for this additional purchase is known as ‘stair casing’. It makes it an enticing proposition for first time buyers with relatively low income compared to the average house prices. A distinct disadvantage is that you can lose part of the equity gains to the housing association as the properties value increases.
 

There are three main facts to remember if you intend to enter into a shared ownership mortgages.

You should make absolutely sure of the following;
• Confirm the percentage you intend to purchase.
• If you are providing a deposit, how much is it going to be?
• The amount of rent you have to pay for the share that is not yours. This figure is
important, because it will be needed to work out the amount that can be borrowed.
Not all borrowers circumstances are the same and some people can really benefit from the helping hand that shared ownership can offer in the early years.


Obtaining shared ownership mortgage funding on such deals is not as straight forward as standard purchases. This is due to some lenders not lending on such ventures. However, with the help of an Independent Adviser who specializes in shared mortgages you will be able to see quite clearly the wide range of deals available in the market.
 

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