Secured Loans Second Mortgages What One Needs To Plan On Buy To Let Mortgage Reverse Mortgages Evaluated With A Mortgage Calculator Why Should You Get A Capped Mortgage
During the past five years lenders have seen a boom in the demand for second mortgages as borrowers look to capitalise on the equity in their home. The low cost of borrowing coupled with the spiralling value of homes in the UK has led to a substantial strengthening of the equity position of many a homeowner. The equity position of some homeowners is in fact so strong that they now find themselves in the fortunate position of having more equity in their home than they have debts secured against their home on first mortgages and other loans.
Buoyed by the healthy state of positive property equity confidence is running high when it comes to homeowners committing to further borrowing. Many are taking the opportunity to secure second and even third charge loans against the equity in their property in order to release cash funds. Even the more conservative borrowers are now beginning to see the light, despite experts predicting of an imminent slowdown in the housing market.
If you’re thinking about releasing equity in your home through a second mortgage, here are some things you’ll need to consider before you take the plunge: –
Interest rates on second mortgages
The interest rates charged on second mortgages are often higher than those that are levied on first mortgages. This is because lenders see second mortgages as a higher risk than first mortgages and so compensate for this risk through fixing higher interest rates on second mortgages.
The increased risk factor on a second mortgage is down to the fact that these types of mortgages are a second charge on the property. That is to say that in the event of you defaulting on repayment to the point that your home is repossessed, the first mortgage lender legally gets first bite of the cherry when it comes to recovery of the loan. For second loans secured against the property, the lender has to wait its turn, running the risk that it may recover only part of the loan advanced or in some cases none of the loan advanced.
Different lenders have different lending criteria for second charge mortgages. Whilst all lenders are likely to assess applicants for a second mortgage on the value of their home, their ability to repay the loan and their current income to debt ratio, not all lenders will give the same weight to these factors in the final analysis. This is why you may be rejected by one lender but accepted by another on an almost identical second mortgage offer.
Can you afford the repayments?
For a lender to be convinced that you are able to meet the repayments on a second mortgage, you’ll need to be sure how you’re going to repay the loan. You should never take on a second mortgage without first planning how you will pay the money back.
Different types of second charge mortgages
There are several different types of second charge mortgages to choose from. Be sure to get information on all your options and select the type of second mortgage that is most suitable for your circumstances. It is advisable to never borrow more than the current equity value in your home.
Property acquisition plans can go haywire if buy to let mortgage is not planned well. Buy to let mortgage, unlike other forms of property investments, contribute a major share towards the acquisition. The desire to have easy money in the form of house rentals may lead many people to take the dip. However, how many of them achieve the desired goals through the mortgage is debatable. Buy to let mortgage will be used to acquire second homes for being let on hire. The process of collecting rentals is time and again a long-drawn process. Often the projected rentals cannot be collected. Repayment of buy to let mortgage becomes difficult in such situations.
Planning involves the borrower asking himself questions on several issues related to buy to let mortgage. The very first question that the borrower needs to ask himself is the purpose for which the mortgage is intended. It is true that the buy to let mortgage will be employed in the purchase or construction of a second house. However, ‘is the borrower prepared to let the house on rent’ will be important to decide. An answer in positive will be a direction to move ahead on the mortgage proposal. If not, then the idea of financing new home may better be shelved. Otherwise, alternative methods of financing new home need to be searched.
Buy to let mortgage comes in a variety of forms in the UK. Depending on the features that they let borrowers enjoy, they may take up different names. Fixed rate, discounted rate, and base rate trackers are just a few of the mortgages available. Mortgage decision includes the type of mortgage that will best suffice ones needs. Borrowers need to make the product decision on the basis of their individual priorities. Fixed rate buy to let mortgages, for instance, keep the rate percentage stable at a certain point for a period or the entire term. This will suit borrowers who want to escape the vicissitudes in interest rate.
No mortgage decision is taken in individuality. Every decision influences directly or indirectly, certain other decisions. The decision to fix rate of interest on buy to let mortgage, for instance, results in an increase in fees. Normally, loan providers will charge 2% as brokerage fees. This is the compensation for the service that they are providing, i.e. searching best deal buy to let mortgages. The brokerage fees may go upwards if clauses such as fixed rate are included. The astuteness of the decision to fix rate of interest will be judged by the times it outweighs an increase in brokerage fees.
Lender decision constitutes an important part of the planning process. The most appropriate lender chosen need to possess the following three essentials. Firstly, the lender must be reputable and have contacts with other prominent banks and financial institutions. Secondly, the lender must be capable of satisfying demands of diverse groups of mortgagors. Finally, the quality of deals available with the lender must be incontestable. It will be unwise to compromise on any of these essentials during search for appropriate lender. Reputation of the lender influences the quality of deals offered. Lenders who have associated with several banks and financial institutions will be able to arrange best deals. The larger the variety of deals available with lender, greater are the chances of drawing deals that fully satisfy the desired purpose.
Borrowing amount needs to be decided in close conjunction with the amount of rental that one hopes to collect. Rent has a very important role in the buy to let mortgage. It is through the rent received that the borrower repays the mortgage.
Rentals differ by place, type of building and the house itself. Survey of the area and checking with brokers based in the area will give important information about the rental in the area. Borrowers will get to know about ways in which the house be designed, and areas where property be purchased to optimise the rental.
Normally, 85% of the house value will be cleared as buy to let mortgage. The remaining 15% need to be introduced by the borrower himself as deposit. Mortgage amount increases in direct proportion to the amount of deposit offered. Deposit demonstrates the borrower’s commitment towards the housing project.
Borrowers who cannot afford to lose on work will find online applications very helpful. Powered by the technological innovations in communication, borrowers can now submit their personal as well as mortgage details through online application. Online application contributes largely towards transferring borrower details immediately and thus resulting into a fast buy to let mortgage approval.
While the process of application has been made convenient, planning still needs borrowers to themselves conduct calculations and comparison. Borrower may opt for advice through experts. However, the final decision on buy to let mortgage will be theirs, because they are the ones who best know their finance.
If you are like most retired adults, you own a home but have very little else for retirement. However, if you sell your house, you won’t have a place to live! So here’s your problem: you need money to live on, but the only thing that you own of value is the place you live.
A reverse mortgage can give you the answer this retirement dilemma. This option sells your house a piece at a time, instead of all at once. Also, you get to live in your home. You can use a mortgage calculator to determine the monthly cost of home equity loans or refinancing. Also, you can use this mortgage calculator to figure out how much your loan would cost you in total.
First, call a real estate agent. They will be more than happy to tell you how much your home would sell for, and how to increase its value. Depending on your level of savvy and the time you could commit to it, this could pay off handsomely. The reason is that the amount that a reverse mortgage will pay you is based on your home’s value. So, if there is an easy way to increase the value of your home, do it before applying for a reverse mortgage.
You can use a mortgage calculator to find out if you should get a home equity loan before you get your reverse mortgage. The mortgage calculator will tell you how much, in total, a home equity loan would cost you for the short time between the repairs and the reverse mortgage. But be careful. Don’t spend more remodeling than it will increase your home’s value. Also, if you love something about your house, don’t change it. After all, you still get to live in it.
Okay, now that you know how much your house would sell for, it is time to look into a reverse mortgage loan. You can use a special mortgage calculator to find out how much each different loan would give you. This mortgage calculator bases its results on four things: your age, your house’s value, your house’s location and your lender. More than one company offers a mortgage calculator, so it is best to check with AARP to see if it is a valid program. The mortgage calculator on their website is very simple, but it is a good place to start.
But why is it called a loan? Because, when you are done with the house, the lender wants money, not the house. Of course, if the house sells for more than you were paid, your heirs may get some of it. This is a detail you should work out when you get the loan. Again, there are mortgage calculator programs to help you figure this out. If you still have a loan on your property, you will have to pay it off before you get your money.
Once you have done your own research, it is time to talk to a professional. The real estate agent that you spoke to before should be glad to give you a list of good lenders and mortgage brokers. They will walk you through the process. Read every document. Ask questions about anything that you don’t understand. And soon, instead of paying a mortgage every month, you will be able to receive a check instead.
Many people who get variable rate mortgages find that they can mix the security of a fixed rate mortgage whilst still having variable rates by getting a capped mortgage plan. If you are looking for a variable rate mortgage then you should seriously consider putting a cap on the mortgage. Here is some useful advice about whether or not you should proceed with a capped mortgage:
What is a capped mortgage?
Capped mortgages are a type of variable rate mortgage. A variable rate mortgage means that the interest rate on your repayments can vary. By putting a cap on the interest rate, it means that even if your interest rate changes, it can only change by so much. There is an upper limit on what you can pay, but if the interest rate falls then you will pay less. Capped mortgages are the option in between variable and fixed rate mortgages.
What are the advantages?
The obvious advantage of a capped mortgage is that you can benefit from variable rates but never have to pay above a certain limit. This allows you to take advantage of potentially lower rates, but also adequately budget each month and have peace of mind that your payments will not rise above a certain amount. In many ways, a capped mortgage is the best of both worlds. If you think that interest rates are going to go down, then getting a fixed rate mortgage now would be unwise as the fixed rate will be uncompetitive in a year’s time. Also, if you think that interest rates are going to rise then you want to have an upper limit on how much you can be charged. If you want a mixture of security and cheap prices, then a capped rate mortgage is for you.
However, all of these benefits come at a price. Capped mortgage rates are usually higher than fixed rate or variable rate starting prices, because you get so many benefits. Also, there are not as many lenders willing to offer capped rate mortgages because of the obvious benefits to the borrower. You usually have to have a good credit history and even then it can be hard to get a capped mortgage. However, if you don’t mind paying a slightly higher rate and want the chance to get lower prices as well as being able to budget, then a capped rate mortgage is for you.
Getting a capped rate mortgage
As previously mentioned, there are fewer lenders offering capped rate mortgages than other types of mortgage. This makes shopping around an easier task, but it is still necessary to do so in order to find the best deals. If you are still unsure about whether or not a capped rate mortgage is suitable for you, then speak to an independent financial advisor. Even if you already have a mortgage, you might be able to negotiate a deal with your current lender and put a cap on your variable rate mortgage..
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