Introduction

Mortgages were the original home loan agreement. In many ways, the mortgage changed the real estate market completely and turned it on its head in a very good way. Before the advent of the mortgage, the only way for people to go out and get what they wanted in terms of property was to pay for it outright. Since very few people possessed the means back then to pay for property outright, the ownership rights were only there for pretty much the upper middle class and the upper class people; the middle class downwards were excluded from this very important thing. Mortgages changed all of that and to understand how profound a mortgage is, it is important to take a close look at exactly what a mortgage entails.

Agreement

The agreement for a mortgage is one that is the main point of everything else that follows. Under the agreement of a typical mortgage, the person has the ability to borrow money from the bank in order to pay for a house or a property. The amount of money they can borrow varies, but for the majority of banks it usually resolves itself towards being around 95% of the actual quoted value of the house. In exchange for getting this very large loan, the person then agrees to put the house up as collateral against that loan, so that the bank has some way to save itself in the event that the person is unable to pay that loan back.

Interest Rates

Now, whenever people think about loans, very likely the first thing that they think about is interest rates. There are a number of different interest rates involved in different loans, but when you compare the vast majority of them to what is available under a mortgage, what you find is that the vast majority of those interest rates don’t really match up. The average mortgage has an interest rate attached to it between 5% and 7% and the vast majority of loans that are available on the marketplace today, even if they happen to be secured loans, really can’t match up.

Repayment Terms

Just like with the interest rates, the repayment terms for a number of different mortgages are very impressive when put up against a number of other conventional loans. When you’re talking about unsecured loans (i.e. credit cards), then obviously there’s going to be no contest, but for the most part you will find that mortgage repayment terms are significantly easier to deal with than with most other loans. This is because (a) the collateral being used is extremely strong and (b) the term lengths are longer, so naturally that makes the monthly payments smaller.

Fees

There are some fees for mortgage payments relating to things like late payments and underpayments, but you will find for the most part that fees are not really that important in the grand scheme of the agreement itself. It is important to be aware of what fees are there, but most of the time you will see that they aren’t that big.

Related items

• Mortgage Repayment Protection Insurance
• Mortgage Comparison

Mortgage Repayment Protection Insurance is usually taken out at the time you apply for a mortgage but can be arranged with some insurance companies after the mortgage has been completed.

You should seek suitable advice about arranging such cover from a suitably authorised person.

Mortgage Repayment Protection Insurance provides cover in the event of you being unable to work as a result of an accident or illness or being made involuntary unemployed.

The maximum amount of cover that you can arrange is based on the amount of the monthly mortgage repayment plus you can also cover such things as the monthly buildings and contents insurance premium and mortgage related life insurance monthly premiums such as an endowment policy or a decreasing term assurance policy.

Mortgage Repayment Protection Insurance usually pays out for up to 12 months.

You do not usually have to have a medical to arrange mortgage repayment protection insurance.

In the UK cover can usually be taken out as long as you work for at least 16 hours per week and are aged between 18 and 64.

The cover ceases once the mortgage is repaid or you reach age 65 or you retire or should you stop maintaining the monthly premiums or indeed should you just decide to cancel the policy.

Mortgage Repayment Protection Insurance can be taken out either just to cover one applicant or both applicants. If both applicants are covered and say they are both on the same income then the policy will pay out half of the amount of the monthly cover in respect of the applicant who is ill.

In the UK the cost of Mortgage Repayment Protection Insurance is based on the amount of the monthly cover you have arranged and will vary between the various companies who offer such cover.

There are some exclusions with this type of policy which you should establish.

Related items

• Anatomy of a Mortgage
• Mortgage Comparison

An offset mortgage comparison is not as straightforward as it would first seem. This article will give an overview of an offset mortgage and discuss how to compare offset mortgages to help you find the right one.

Offset mortgages are fairly new to the UK market place. They were introduced to the UK in the late 1990s and originated from Australia. They were seen as a niche product, but this has changed since interest rates have decreased and the market has opened up. The principle of offset mortgages is relatively simple ? when a borrower takes out an offset mortgage, it is linked to their savings and/or current account. This allows the borrower to offset their mortgage debt against the money in their accounts, thus reducing the amount of interest owed. For example, if a borrower has a £250,000 mortgage and £50,000 in savings, interest will only be charged on the difference, i.e. £200,000.

The range of offset mortgages within the market place has increased in recent years and consequently, offset mortgages have becoming increasing complex. For an offset mortgage comparison, you can’t just compare the Annual Percentage Rate (APR) as you would with a traditional type of mortgage. The APR has limited value with an offset mortgage because nothing else is taken into account, such as the flexibility of the account, set-up charges, and Early Redemption Charges (ERC).

To obtain an offset mortgage comparison, it is important to look at the key aspects of an offset mortgage and to ask yourself ? ‘what can my offset mortgage do for me?’ Key aspects include:

Flexibility of the account

Overpayments – are you likely to make frequent overpayments into your mortgage account? If so, you will want an offset mortgage that does not penalise for frequent overpayments or penalise you for paying off your mortgage early.

Underpayments and/or payment holidays – do you want a career break with underpayments or payment holidays from your mortgage? Not all offset mortgages offer underpayments or payment holidays, whereas some types of offset mortgage offer the service, but you usually have to make a certain amount of overpayments before you are eligible.

Credit limit – will you need a lump sum of cash in the future, for example, home renovations? Some offset mortgages allow a credit limit on top of the agreed mortgage, depending on the amount of equity in the property, which acts as a loan facility.

Debt – are you carrying credit debt and personal loans? Some offset mortgages allow the debt to be incorporated into the mortgage package, possibly leading to a lower repayment rate. The debts can also remain unsecured.

Number of accounts – can you add more than one savings/current account to your mortgage? Do you have family members that are willing to link their bank accounts to your mortgage debt? If so, you can further reduce your interest payments.

Charges and interest rates

At first glance, an offset mortgage with an initial low APR for two years and low arrangement fees may look appealing, but if it has an ERC and no underpayment facilities, it would not be suitable if you wanted to make frequent overpayments to pay your mortgage off early, but were planning to have a career break in the future.

There are many lenders in the mortgage market that offer different types of offset mortgages. To guide you through the intricacies of an offset mortgage comparison it would be best to seek advice. An independent mortgage broker can advise you and help you with an offset mortgage comparison to ensure you can have the best offset mortgage for your needs.

Related items

• Anatomy of a Mortgage
• Mortgage Repayment Protection Insurance