Mortgage loan Definition

A loan to finance the purchase of real estate, usually with

specified payment periods and interest rates. The borrower (mortgagor) gives

the lender (mortgagee) a lien on the property as collateral for the loan. The mortgagor's lien

on the property expires when the mortgage is paid off in full.

What is a Mortgage?

A mortgage is a long-term loan taken out to buy property or land. You repay the loan plus interest over a period of anything up to 35 years.A mortgage is the biggest, most expensive financial product most people ever take out, so it’s important to understand the terms and pick the right mortgage for you. Also, since a mortgage is ‘secured’ against the property, if you don’t keep up with your mortgage repayments your lender can repossess your home.

Get the wrong one and even if you don’t lose your property you could end up paying tens of thousands of pounds more than you need to in interest and fees.

Meaning

Mortgage Loan means using a property as a security to pay off a debt. The term,

mortgage, means the legal device used for paying of the debt, but it is also

commonly used to refer to the debt secured by the mortgage, which is called the

mortgage loan. In Many countries Mortgages are strongly associated with real

estate rather than any other property (such as ships) and in some cases only land

may be mortgaged. Applying for a mortgage is seen as the standard method by

which individuals or businesses can purchase residential and commercial real estate

without the need to pay off the full value immediately

History of Mortgages

You may think mortgages have been around for hundreds of years -- after all, how could anyone ever

afford to pay for a house outright? It was only in the 1930s, however, that mortgages actually got their

start. It may surprise you to learn that banks didn't forge ahead with this new idea; insurance companies

did. These daring insurance companies did this not in the interest of making money through fees and

interest charges, but in the hopes of gaining ownership of properties if borrowers failed to keep up with

the payments.

It wasn't until 1934 that modern mortgages came into being. TheFederal Housing Administration (FHA)

played a critical role. In order to help pull the country out of the Great Depression, the FHA initiated a new

type of mortgage aimed at the folks who couldn't get mortgages under the existing programs. At that time,

only four in 10 households owned homes. Mortgage loan terms were limited to 50 percent of the

property's market value, and the repayment schedule was spread over three to five years and ended with

a balloon payment. An 80 percent loan at that time meant your down payment was 80 percent -- not the

amount you financed! With loan terms like that, it's no wonder that most Americans were renters.

FHA started a program that lowered the down payment requirements. They set up programs that offered

80 percent loan-to-value (LTV), 90 percent LTV, and higher. This forced commercial banks and lenders

to do the same, creating many more opportunities for average Americans to own homes.

The FHA also started the trend of qualifying people for loans based on their actual ability to pay back the

loan, rather than the traditional way of simply "knowing someone." The FHA lengthened the loan terms.

Rather than the traditional five- to seven-year loans, the FHA offered 15-year loans and eventually

stretched that out to the 30-year loans we have today.

Another area that the FHA got involved in was the quality of home construction. Rather than simply

financing any home, the FHA set quality standards that homes had to meet in order to qualify for the

loan. That was a smart move; they wouldn't want the loan outlasting the building! This started another

trend that commercial lenders eventually followed Before FHA, traditional mortgages were interest-only

payments that ended with a balloon payment that amounted to the entire principal of the loan. That was

one reason why foreclosures were so common. FHA established the amortization of loans, which meant

that people got to pay an incremental amount of the loan's principal amount with each interest payment,

reducing the loan gradually over the loan term until it was completely paid off.

On the next page, we'll break down the components of the modern monthly loan payment and explain the

important concept of amortization.

Types of mortgage loan

Fixed Rate mortgage

Definition of fixed rate mortgage

A mortgage that has a fixed interest rate for the entire term of the loan. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.

What is a mortgage?Fixed-rate mortgages

A fixed-rate mortgage can provide financial stability

What is a fixed-rate mortgage?With a fixed-rate mortgage, the interest rate stays the same for a set period of time. This means that for every month during this set period, your mortgage repayments will remain the same.

This is in contrast to a variable-rate mortgage, which will go up or down in relation to the Bank of England base rate, or your lender's standard variable rate (SVR).  The term of a fixed-rate mortgage usually lasts between two to five years, but can be much longer. When this period comes to an end, your lender will typically transfer you automatically onto its SVR.

Fixed-rate mortgage benefitsOne of the main benefits of a fixed-rate mortgage deal is the peace of mind it gives you. You know that during that set period your monthly mortgage repayments won't rise, even if your lender's SVR or the Bank of England base rate does.

This can help you to plan ahead and budget more easily for other household and day-to-day expenses, without facing any nasty repayment surprises.

All this means that a fixed-rate mortgage may be the right choice for you if you're on a tight budget and need the certainty and stability of a fixed monthly payment.

Fixed-rate mortgage drawbacksIn certain circumstances fixed-rate mortgage deals can have higher rates than their variable-rate counterparts. For example, you won't benefit from any cuts to the base rate - if you're on a fixed rate and the base rate drops, your monthly repayments won't drop along with it.

In addition, you may have to pay arrangement fees to set up a fixed-rate mortgage. And you're also likely to face early repayment charges if you pull out of a fixed-rate deal before the end of the deal period.

DEFINITION OF 'ADJUSTABLE-RATE MORTGAGE - ARM'A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.

An adjustable rate mortgage is also known as a "variable-rate mortgage" or a "floating-rate mortgage

Adjustable-Rate Mortgages The interest rate for an adjustable-rate mortgage varies over time. The initial interest rate on an ARM is set below the market rate on a comparable fixed-rate loan, and then the rate rises as time goes on. If the ARM is held long enough, the interest rate will surpass the going rate for fixed-rate loans.

ARMs have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged frequency. The fixed-rate period can vary significantly - anywhere from one month to 10 years. Shorter adjustment periods generally carry lower initial interest rates. 

ARM Terminology 

ARMS are significantly more complicated than fixed-rate loans, so exploring the pros and cons requires an understanding of some basic terminology. Here are some concepts borrowers need to know before selecting an ARM.

Adjustment Frequency - This refers to the amount of time between interest-rate adjustments (e.g. monthly, yearly, etc.).

Adjustment Indexes - Interest-rate adjustments are tied to a specific index, or benchmark, such as the interest rate on certificates of deposit or Treasury bills, or the LIBOR rate.

Margin - When you sign your loan, you agree to pay a rate that is a certain percentage higher than the adjustment index. For example, your adjustable rate may be the rate of the one-year T-bill plus 2%. That extra 2% is called the margin.

Caps - This refers to the limit on the amount the interest rate can increase each adjustment period. Some ARMs also offer caps on the total monthly payment. These loans - known as negative amortization loans - keep payments low, however these payments may cover only a portion of the interest due. Unpaid interest becomes part of the principal. After years of paying the mortgage, your principal owed may be greater than the amount you initially borrowed.

Ceiling - This is the highest interest rate that the adjustable rate is permitted to become during the life of the loan.

ARMs are attractive because they offer low initial payments, enable the borrower to qualify for a larger loan and in a falling interest rate environment, allow the borrower to enjoy lower interest rates (and lower mortgage payments) without the need to refinance. The ARM, however, can pose some significant downsides. With an ARM, your monthly payment may change frequently over the life of the loan. And if you take on a large loan, you could be in trouble when interest rates rise - some ARMs are structured so that interest rates can nearly double in just a few years. 

Variable rateWith a variable rate mortgage, your interest rate can go up or down each month, depending on external factors. There are two main types:

Tracker These have an interest rate that ‘tracks’ either the Bank of England base rate or your lender’s own standard interest rate.

If you choose a mortgage that tracks the base rate, your interest rate, and the amount you repay each month, will change if the Bank of England changes the base rate. For example, a tracker mortgage might be 1% above base rate. If the base rate is 0.5%, you’ll pay 1.5%. So, if the base rate rises to 2%, you’ll pay 2.5%.

If your mortgage tracks your lender’s standard rate – known as the ‘standard variable rate’ or SVR – what you pay is based purely on your lender’s whim. In general,  SVRs go up and down in line with the base rate and the lender is allowed to change the rate whenever it sees fit.

Discount This is a variable rate mortgage that tracks the lender’s SVR, but several percentage points lower. For example, the discount might be 1% off the SVR. So if the lender’s SVR is 3%, you’ll pay 2%.

A variable rate mortgage may suit you if you want to pay less now and are prepared to risk the chance of your monthly repayments rising if the interest rate you are tracking moves upwards. Read more in our dedicated guides totracker and discount mortgages

What you need to get a Mortgage1. A Deposit

You need to save a deposit to get a mortgage, and the bigger the better. If you save a 10% deposit, your mortgage will be 90% of the property’s value. This is known as the loan-to-value (LTV).

In general the lower the LTV, the better the interest rate you’ll be eligible for.

2. A Good Credit History A lender will check your credit history when you apply for a mortgage. They will want to see how you’ve handled borrowing money in the past and if you pay bills on time. The better your credit history the lower the interest rate you will be offered on your mortgage.

Read our guides to understanding your credit score and improving your credit rating to find out more.

3. Proof of Affordability Mortgage lenders will check if you can afford your mortgage. To do this they look at your income and outgoings. If you’re employed they will want to see your payslips, and if you’re self-employed they’ll want to see your accounts for several years. Then they will look at your other financial commitments and decide how much they will lend to you.

4. A Potential Home Your mortgage lender may well give you a ‘mortgage in principle’ before you have chosen your dream home. But they won’t release the funds until they’ve carried out a valuation of the property you want to buy. This is so they can make sure it is worth what you intend to pay for it, so they can be sure they’d get their money back if they had to end up repossessing your home.

Repaying your Mortgage

When you take out a mortgage you’ll agree a ‘term’ with the mortgage lender. This is how many years it will take to pay it back. 25 years is the standard mortgage term but most lenders allow terms of up to 35 years. If you can pay the loan off quicker, you can agree a shorter term.

Your mortgage lender will tell you the monthly payments you need to make to repay the mortgage by the end of the term, but you can get an idea of what you’ll pay with this calculator.

Mortgage repayments have two parts: Capital – This is the money you borrowed. Interest – This is your payment to the lender.

There are two ways you can repay a mortgage:

1. Repayment – This means you pay off some of the capital and some of the interest each month. So that, at the end of the term, you’ll own your property outright.

2. Interest-only - This means you just pay off the interest each month so your repayments will be smaller. But, the big drawback here is that at the end of the term you’ll still owe the capital you borrowed. For this reason mortgage lenders will insist you have a plan in place – such as an investment – to repay the capital.Interest-only is also more expensive in the long-run as you are paying interest on the full loan for the entire length of the mortgage. In contrast, with a repayment mortgage the amount of interest you are paying slowly falls as you repay the capital.

If you fall behind on your monthly mortgage payments, this is known as “arrears”. If you don’t pay off your arrears when requested by your mortgage lender, it may eventually repossess your home.

Mortagage loan in india :The concept of Mortgage Loans in India is growing day by day. The growth of the mortgage loans in India is boosted by the development of the real estate and increment in the activity pertaining to construction. 

The mortgage loans in India were previously supplied mainly by the financial institutions but now the commercial banks are also providing mortgage based loans to various types of customers. The commercial banks provide mortgage loans on nominal rates of interest. 

Objectives of mortgage loans in India:

To provide the customer with the best possible services 

To put emphasize on the quality of the credit and advance in form of mortgage loan

To focus on management of income and cost

The Mortgage Loans in India is provided against collateral security such as industrial property, urban commercial complex, residential house or apartment, possessed in the name of the receiver of the loan. The security such as rented house can be accepted if that same property is on a lease and the person should also have the authority to collect the rent under the power of attorney.

Organizations offering Mortgage Loans in India: HDFC Bank Mortgage Service - Housing Development Finance Corporation

(HDFC) Bank Mortgage Service is leader in the Indian mortgage market at present with the State Bank of India (SBI) following the lead 

Bank Of Baroda - Baroda Advance Against Property: Bank of Baroda Mortgage Scheme is one most important mortgage schemes in the mortgage market in India 

United Bank of India - United Mortgage Scheme: United Bank of India Mortgage Scheme is one of the most important part of the financial portfolio of the United Bank of India 

Bank of India - BIO Star Mortgage Scheme: Bank of India Mortgage Scheme provides high quality financial product to fulfill the various requirements of the customers 

Union Bank of India - Union Mortgage Scheme: Union Bank of India Mortgage Scheme offers a variety of financial products for the individual customers of various types 

State Bank of Mysore - Equitable Mortgage of Property: State Bank of Mysore Mortgage Loan is one of the primary financial products of the State Bank of Mysore.

The main functions of the mortgage loans in India: Loans are provided for the purchase of four wheeled vehicles and two wheelers Loans are provided for the purpose of repayment of the previous loans Loans are provided for meeting the expenses pertaining to medical, educational and

marriage purposes Loans are provided for undertaking renovation and repair works of the residential

property Loans are provided for the purpose of purchasing land plots, houses, construction of

houses Loans are provided for meeting the needs for commercial, trade and other business

activities Loans are provided for the requirements of the professionals for any kind of activities

such as education, house construction or purchase

The services offered under the Mortgage loans in India: Home equity loans Mortgage refinancing Real estate lending New home loans Latest mortgage quotes Debt consolidation service

India Mortgage Loans Bank of Baroda         Mortgage Scheme Bank of India Mortgage Scheme Canara Bank Mortgage Service HDFC Bank Mortgage Service ICICI Bank Mortgage Service Mortgage Industry in India Mortgage Insurance India Mortgage Lenders in India Mortgage Loans in India India Mortgage Market State Bank of Mysore         Mortgage Loan Union Bank of India       Mortgage Scheme United Bank of India         Mortgage Scheme

Main objectives of mortgage loans in India: To provide the customer with the best possible services To put emphasize on the quality of the credit and advance in form of mortgage

loan To focus on management of income and cost

The main Functions of the Mortgage Loans in India: For the purchase of four wheeled vehicles and two wheelers For the purpose of repayment of the previous loans For meeting the expenses pertaining to medical, educational and marriage

purposes For undertaking renovation and repair works of the residential property For the purpose of purchasing land plots, houses, construction of houses For meeting the needs for commercial, trade and other business activities For the requirements of the professionals for any kind of activities such as

education, house construction or purchase

Loan against property documents:

Why to avail property loan??Property Loans are the cheapest Loans available, after Home Loan

Most secured type of Loan. Provides Longer tenure up to 15 years. Property Loans start from Rs 2 Lakh onward depending on your property

valuation Low rate of interest offer. Documents Requirements similar to Personal Loans, plus Property Pages

extra. Speedy Processing. Loan borrowed up to 70% of market value for Property. Flexible EMI options.

Document Requirements for Loan against Property: For Salaried:

1. Application form with photograph2. Identity and Residence Address Proof3. Latest Salary Slips for last 6 months4. Form 16 for previous employment5. Bank Statements (Last 6 months)6. Processing fee cheque7. Original Property Documents

For Self Employed:1. Application form with photograph2. Identity and Residence Address Proof3. Proof of business existence & Education Qualifications.4. Last 3 years ITR5. Last 3 years Profit and Loss Statement and Balance Sheet6. Bank Statements (Last 6 months)7. Processing fee cheque8. Original Property Documents

Some important Points for taking a Mortgage Loan:1. Age of customer must be less than 55 years.2. Minor cannot become a co-applicant or applicant while taking the loan3. End use of the loan must be general and should follow the Indian laws.

 

Benefits of loan against property 

LAP- Loan Against Property, loans are a convenient means to access funds in the banking sector at lower interest rates than personal loans and any other forms of unsecured loans.

When someone takes a loan, something has to be kept as a security in case he/she is not able to pay off the loan in the allotted period of time.

Advantages of Loan against property: Due a property being security the interest rates are low

Because of the same reason as above Loan against property is a secured loan.

The allotted time within the loan has to be paid is longer than any other loan. It can also be extended up to 15 Years

The EMI (Equated Monthly Installment) for Loan against Property is lower than other types of loans, the reason being same as above point.

Disadvantages of Loan against property: The individual applying for the loan will not be able to request any amount. It

is the property that will determine the extent of the loan: it has to be in the condition that it is required to be in as per the prevalent rules and standards of the country.

Loan Against property has stricter income norms, which also constitute the eligibility norms in case of LAP, than Home Loans.

The money Lenders carry out valuation of the property independently. They tend to value it at a lower rate than the actual market value.

Since the use of the Loan against property is unknown, the lender is at a higher risk of getting a return and tends to charge more than other loans like education loan, home lone etc., where the purpose of the loan is fixed.

Just as everything in this world has its advantages and disadvantages, Loan against property has its pros and cons too. It has low interest rate simultaneously there is a risk of property being evaluated lower than the actual market price. Generally LAP is resorted to when the loan amount needed is more than what can be possibly generated by unsecured loans – since the value of a property appreciates continuously – and the repayment term required is longer than that for any other loans by 5 years.

 

The Concept of Mortgage Loans Explained

What exactly is a mortgage you might ask? Simply put, a mortgage is a loan given out to individuals

by a bank or other lending institution designed for the purchase of a home. A mortgage is a security

backed loan, meaning that when a person goes into a bank to get a mortgage, the bank will actually

own the physical home, and they will use that home as collateral for their loan. In the unfortunate

event that a borrower should default on his or her loan, the bank has the right to repossess the house

to recoup their investment. A mortgage however, is much more complex than it might seem on the

outside.

A mortgage is based on the concept that people need to have places to live, but they cannot afford to

pay the high cost of that home up front. Mortgages were born to allow people to finance the purchase

of their homes.  Without having a mortgage, the

majority of people would be unable to buy a home and would be unable to own their own home. Many

people are handed down their homes and many people do not have mortgages on their home,

however the majority of these people received their homes in an inheritance. The percentage of

people who can afford to buy a home outright is very small. The vast majority of "homeowners" today,

have a mortgage on their home.

The concept of a mortgage loan was conceived many years ago because banks saw an opportunity to

make a great deal of money off of people who wanted to buy homes. The bank has the resources to

lend to the money so people could buy their homes, and they charge interest to the borrowers as

their price to borrow the money. When a person pays back their loan over the full course of their

mortgage term, they will have paid back many times over what their original loan amount was. This

concept is very grating to some people, but in reality, it is the only way that most people are able to

buy a home.

Mortgages are very diverse in that they can come in many forms. You can take out a mortgage for a

single person home, or a multiple family home. Many people also are charged different interest rates

and have different loan repayment terms. Many people are also able to pay varied fees and charges

that are associated with their loan. All of these details may change dramatically from one loan to

another, but the basic concept of having a mortgage on a home, does not change at all.

Mortgages are one of the most basic financial instruments because they are so prevalent. Mortgage

lenders have sprung up around the world because in today's market, people are simply unable to buy

a home without having a mortgage to do so. This means that people are prevented from ever owning

a home if they do not qualify for a mortgage. This also means that people will not be able to fulfill

their goals of owning a home if it were not for a mortgage. A mortgage is a very freeing concept

because it allows people to get the home that they want and to reach their goals through the help of a

bank and the mortgage that they offer.

MORTGAGES

What is a mortgage loan modification?UPDATED 9/10/2014

A mortgage loan modification is a change in your loan terms. The

modification should be designed to reduce your monthly payment to an

amount you can afford.

Modifications come in different forms. Some extend the number of years

you have to repay the loan. Others might reduce your interest rate or even

reduce your principal to help you make your monthly payments.

Why a Mortgage is one of your most importance loans ever

There is no getting around the fact that of all the loans that you will ever take your mortgage is going

to be the most important. There are lots of reasons for this but it mainly comes down to the size and

the duration of the loan. Because you are making such a big commitment when you take a mortgage

it is important that you make sure that you get the best deal possible.

A mortgage is probably your most important loan because it is probably by far the biggest loan that

you will ever take. That in itself is a big deal since the interest that you pay is going to be a

percentage of the amount that you borrow it is important to make sure that you are getting the best

deal possible. In most cases the interest will actually exceed the amount that you borrow so it will

really add up. Therefore you need to make sure that youshop around to get the best possible deal.

The other big reason that your mortgage is the most important loan that you will have is that you are

going to have it for a long time. Most people will take thirty years to pay off their mortgage. Since

you are going to be paying it for that many years it is important that you get the right mortgage. If

you do make a bad choice in this regard you will find that it is very difficult to get out of the deal and

take a new mortgage. At the very least it costs a lot of money to change your mortgage.

Your mortgage is almost certainly going to be the most complicated loan that you will ever take out

so it is important to make sure that you understand it. Most loans are fairly simple to understand but

this is not the case with a mortgage. It is important to make sure that you completely understand

what you are agreeing to before you sign a mortgage. Unfortunately predatory lending has become a

problem when it comes to mortgages so if you aren't careful you may find yourself stuck with a

mortgage that is not good for you.

Because your mortgage is so important you need to make sure that you get the best one that you

possibly can. This means that you are going to want to shop around. Getting the lowest interest rate

possible is important since it will save you a great deal of money. There are other things besides the

interest rate that you are going to want to look at when you are choosing a mortgage. These would

include the closing costs and any fees that may be charged. It is also important to pay attention to

any prepayment penalties since this will affect your ability to refinance should you need to.

Difference between ARM &FRMWhen buying a home or refinancing, one of the most crucial decisions is choosing your mortgage. Fixed-rate and adjustable-rate mortgages have some unique features that can help inform your decision.

Comparison chart

Adjustable Rate Mortgage

Fixed Rate Mortgage

Interest rateFixed for the first few years, resets periodically thereafter

Fixed for the duration of the loan

Interest rate risk

The risk of interest rates rising in the market is borne by the borrower. If rates fall, borrower benefits.

The risk of interest rates rising is borne by the lender. If interest rates fall, borrower may refinance but usually incurs prepayment fees or other costs associated.

Affordability

Monthly payments are lower initially (for the first few years)

Monthly payments are higher because interest rate is slightly higher; because the lender bears the interest rate risk and charges the borrower a premium for this risk.

Mortgage features explained

Buying a home is one of the biggest financial events your life and, unless you're very fortunate, you'll have to take a trip to the bank to be able to afford one. Getting a mortgage is your pathway to home ownership, but it can be laden with jargon, pitfalls and smallprint that could put you off course.

At Which?, we know how important it is to find the right mortgage deal at the right price. That's why we've created our mortgage comparison service, which lets you search through hundreds of mortgage deals and compare costs with just the click of a button.

And this is all complemented by Which?'s unique customer satisfaction scores, which show you how thousands of real mortgage customers rate the service they've been getting from their lender, to help you choose a great deal from a great company. 

What is a mortgage?Interest-only

mortgages and repayment mortgages

A repayment mortgage guarantees you'll pay it off by the end of the term

You can take your mortgage out on either a repayment basis on an interest-only basis. Visit the mortgage calculators offered by Which? Mortgage Advisers to find out what your repayments would be at different interest rates, see how much you could borrow and work out how much you can afford to spend on a mortgage.For full information on the differences between interest-only and repayment mortgages, see our interest-only vs repayment mortgages section.

Repayment mortgagesThese can also be called 'capital and interest' repayment mortgages.

You gradually pay off the amount you borrowed over the term of the loan, together with interest. You make one payment each month to your lender. Part of it goes towards repaying the interest that your lender charges and part goes towards repaying some of the money you originally borrowed.

Repayment mortgages guarantee that the whole loan is repaid by the end of the term, making them a low-risk option.

The Which? mortgage comparison tables let you search all available deals from lenders large and small to choose the best deals based on quality of service as well as cost and benefits.

Go further: Which? mortgage comparison table - compare the best deals on the market

Interest-only mortgagesWith interest-only schemes you only pay back the mortgage interest during its term. Your payments to your lender will go towards repaying the interest charged - you don't actually repay any of the money you originally borrowed (the capital).

This means you should simultaneously make other arrangements for paying back the capital. This typically involves paying a separate monthly amount into an investment (such as a stocks and shares Isa).

However, there is no guarantee that the investment will grow enough to pay off the mortgage in full at the end of the term. If the gamble doesn't pay off, you will face a shortfall when you come to repay your mortgage.

You also end up paying more interest overall on an interest-only mortgage as you are paying interest on the whole loan for the whole term.

EndowmentsIn the past, interest-only mortgages were more commonly linked with endowment policies as a repayment vehicle.

Endowments are classed as 'risky' products because they’re investments related to the performance of the stock market. There’s always the possibility that if the stock market doesn’t grow enough, your investment might not become big enough to pay off the total amount of your mortgage.

Many people still have either, all or part of an existing mortgage that is dependent on an endowment policy. Some are facing shortfalls on their mortgage when it matures because their endowment won't be providing as much as was promised.

Because of their poor history, endowments are now rarely, if ever, recommended for interest-only mortgages.

If your endowment policy hasn’t increased enough to pay off your mortgage, you will need to find some other way to pay off this part of your mortgage.

How to get the best mortgage dealMortgage fees

Make sure you take mortgage fees into account when choosing a deal

Make sure you take mortgage fees into account when choosing a deal.

The fees you have to pay when you take out a mortgage, including arrangement and valuation fees, can add thousands to its overall cost, so make sure you take these into account when you are choosing a mortgage rather than looking at just the headline interest rate.

Types of mortgage feeArrangement feesThese fees are called various names by mortgage lenders, such as booking fee, completion fee or administration fee, but they are all fees you have to pay to set up the mortgage. Some lenders will charge more than one of these fees for a particular deal.

The table below shows average arrangement fee charged by lenders over the last three months. 

The cost of arrangement fees

Date Average fee

December 2014 £1,567

November 2014 £1,601

October 2014 £1,588

December 2013 £1,571

Table notesData source: Moneyfacts

Avoid adding this fee to your mortgage as you will have to pay interest on it for the life of the loan.

Mortgage valuation feesYour lender will require you to have a basic mortgage valuation on the property you're buying to make sure it provides enough security for the loan, and you'll have to pay a fee for this.

You should also get a survey done, such as a home condition report, Homebuyer’s survey or more detailed building survey carried out, depending on the nature and age of the property.

Visit the Royal Institution of Chartered Surveyors (RICS) website for more on surveys.

Higher-lending chargeThis is sometimes charged if you are borrowing a high proportion of the property’s value. See the previous page of this guide for more on higher-lending charges.

Early repayment chargesThese are also known as ERCs. During your initial deal, you usually have to pay a penalty to get out of the mortgage. This might be a percentage of the amount still outstanding. You should avoid mortgages with ERCs that last beyond the deal period.

Exit feesMany lenders charge an exit fee for closing your mortgage account when you pay your mortgage off or switch lender. You should not have to pay more than was stated on your original mortgage contract.

If you've paid an exit fee in the last six years that was higher than the fee in your contract, challenge your mortgage lender. Complain to the Financial Ombudsman Service if it fails to deal with your complaint satisfactorily within eight weeks.

Mortgage APRAll of the compulsory fees paid when you take a mortgage are included in the APR. The APR is expressed as a percentage and appears whenever you compare mortgages. We explain how it works in our two-minute explainer video at the top of the page. If you want to know more about mortgages in general, watch our video guide to mortgages.

Key Mortgage Phrases you Need to Know First-Time Buyers

If you’ve never owned a house before, you are a first-time buyer (FTB). Many lenders offer special deals for FTBs in order to help you onto the property ladder (and turn you into a long-term customer). So be on the look out for mortgages designed specifically for FTBs.

RemortgagingThis is when you take out a new mortgage to pay off an existing one. The most common reason to do this is to save money. For example, you might be on a two-year fixed rate and find your payments go up (normally to the lender’s SVR) after the fixed period ends. At this point you may want to consider remortgaging to get a cheaper rate. Some people also remortgage in order to borrow a larger amount so they can pay off their debts or pay for home improvements.

PortingThis means moving your mortgage from one property to another allowing you to move home without remortgaging. Not all mortgages allow porting, so if it is something you think you may need check the terms and conditions before you take out a mortgage.

Loan-To-Value (LTV)

You’ll see this thrown around a lot when you are looking for a mortgage. It means the amount of money the bank is lending you as a percentage of the value of your home. So, if your home is worth £200,000 and you’ve got a £40,000 deposit, you

need to borrow £160,000 or 80% of the value of your home. This means you’re LTV is 80%.

Option 1: Fixed vs. Adjustable Rate

As a borrower, one of your first choices is whether you want a fixed-rate or an

adjustable-rate mortgage loan. All loans fit into one of these two categories, or a

combination "hybrid" category. Here's the primary difference between the two types:

Fixed-rate mortgage loans have the same interest rate for the entire repayment

term. Because of this, the size of your monthly payment will stay the same,

month after month, and year after year. It will never change. This is true even for

long-term financing options, such as the 30-year fixed-rate loan. It has the same

interest rate, and the same monthly payment, for the entire term.

Adjustable-rate mortgage loans (ARMs) have an interest rate that will change

or "adjust" from time to time. Typically, the rate on an ARM will change every

year after an initial period of remaining fixed. It is therefore referred to as a

"hybrid" product. A hybrid ARM loan is one that starts off with a fixed or

unchanging interest rate, before switching over to an adjustable rate. For

instance, the 5/1 ARM loan carries a fixed rate of interest for the first five years,

after which it begins to adjust every one year, or annually. That's what the 5 and

the 1 signify in the name.

Pros and cons: adjustable versus fixed-rate mortgages

As you might imagine, both of these types of mortgages have certain pros and cons

associated with them. Use the link above for a side-by-side comparison of these pros

and cons. Here they are in a nutshell: The ARM loan starts off with a lower rate than the

fixed type of loan, but it has the uncertainty of adjustments later on. With an adjustable

mortgage product, the rate and monthly payments can rise over time. The primary

benefit of a fixed loan is that the rate and monthly payments never change. But you will

pay for that stability through higher interest charges, when compared to the initial rate

of an ARM.

Option 2: Government-Insured vs. Conventional Loans

So you'll have to choose between a fixed and adjustable-rate type of mortgage, as

explained in the previous section. But there are other choices as well. You'll also have to

decide whether you want to use a government-insured home loan (such as FHA or VA),

or a conventional "regular" type of loan. The differences between these two mortgage

types are covered below.

A conventional home loan is one that is not insured or guaranteed by the federal

government in any way. This distinguishes it from the three government-backed

mortgage types explained below (FHA, VA and USDA).

Government-insured home loans include the following:

FHA Loans

The Federal Housing Administration (FHA) mortgage insurance program is managed by

the Department of Housing and Urban Development (HUD), which is a department of

the federal government. FHA loans are available to all types of borrowers, not just first-

time buyers. The government insures the lender against losses that might result from

borrower default. Advantage: This program allows you to make a down payment as low

as 3.5% of the purchase price. Disadvantage: You'll have to pay for mortgage insurance,

which will increase the size of your monthly payments.

See also: Pros and cons of FHA vs. conventional

VA Loans

The U.S. Department of Veterans Affairs (VA) offers a loan program to military service

members and their families. Similar to the FHA program, these types of mortgages are

guaranteed by the federal government. This means the VA will reimburse the lender for

any losses that may result from borrower default. The primary advantage of this

program (and it's a big one) is that borrowers can receive 100% financing for the

purchase of a home. That means no down payment whatsoever.

Learn more: VA loan eligibility requirements

USDA / RHS Loans

The United States Department of Agriculture (USDA) offers a loan program for rural

borrowers who meet certain income requirements. The program is managed by the

Rural Housing Service (RHS), which is part of the Department of Agriculture. This type of

mortgage loan is offered to "rural residents who have a steady, low or modest income,

and yet are unable to obtain adequate housing through conventional financing." Income

must be no higher than 115% of the adjusted area median income [AMI]. The AMI varies

by county. See the link below for details.

Learn more: USDA borrower eligibility website

Combining: It's important to note that borrowers can combine the types of mortgage

types explained above. For example, you might choose an FHA loan with a fixed interest

rate, or a conventional home loan with an adjustable rate (ARM).

Option 3: Jumbo vs. Conforming Loan

There is another distinction that needs to be made, and it's based on the size of the

loan. Depending on the amount you are trying to borrow, you might fall into either the

jumbo or conforming category. Here's the difference between these two mortgage

types.

A conforming loan is one that meets the underwriting guidelines of Fannie Mae

or Freddie Mac, particularly where size is concerned. Fannie and Freddie are the

two government-controlled corporations that purchase and sell mortgage-backed

securities (MBS). Simply put, they buy loans from the lenders who generate

them, and then sell them to investors via Wall Street. A conforming loan falls

within their maximum size limits, and otherwise "conforms" to pre-established

criteria.

A jumbo loan, on the other hand, exceeds the conforming loan limits

established by Fannie Mae and Freddie Mac. This type of mortgage represents a

higher risk for the lender, mainly due to its size. As a result, jumbo borrowers

typically must have excellent credit and larger down payments, when compared

to conforming loans. Interest rates are generally higher with the jumbo products,

as well.

This page explains the different types of mortgage loans available in 2014. But it only

provides a brief overview of each type. Follow the hyperlinks provided above to learn

more about each option. We also encourage you to continue your research beyond this

website. Education is the key to making smart decisions, as a home buyer or mortgage

shopper.

Read more: http://www.homebuyinginstitute.com/mortgagetypes.php#ixzz3h6iGMblF

Your mortgage broker can advise you which mortgage product is the best product for

your situation. The amortization of a mortgage is the age of a mortgage. When you can only

afford to put 5%-19% as down payment, you are limited to shorter amortization period of 25

years.

You may choose a longer amortization period if you have more than 20% for downpayment.

The longer the amortization, the lower your monthly mortgage payments will be.

The mortgage loan term signifies the rate along with the number of years you decide to

have a mortgage agreement with your financial institution. Mortgage conditions are from

one year to five-years. A number of establishments may offer shorter or longer mortgage

loan.

You could pay back all or a part of your mortgage with an open mortgage

loans without having any penalties however a closed mortgage loans restricts your

prepayment privilege, nonetheless a closed mortgage generally provides a lower interest

rate than an open mortgage.

Open Mortgages vs Closed Mortgages

Open mortgages and closed mortgages are two unique variations of mortgages.

The dissimilarity between the two occurs in the flexibility of reducing your mortgage,

with fees and penalties (given that is the case with closed mortgages) , as well as without

penalty fees ( for open mortgage loans ) .

Allow us to maximize our understanding and knowledge in your benefit. Consult with one of

our brokers

and then discover which loan solution is best suited for your own personal needs.

Open Mortgages Explanation:

An open mortgage often is repaid most of the time without penalty charges.

You may also make increased installments without fees. Open Mortgage terms range

between six months to five years.

There will probably always be a small charge to withdraw the mortgage when paying out the

mortgage or transferring to a different mortgage lender.

Mortgage interest rates for open mortgages are generally more costly than they are for

closed mortgages

due to their inconsistency naturally (i .e . it will be more difficult for a mortgage lender to

predict returns resulting from its overall flexibility in payments).

Closed Mortgages Definition:

Closed mortgages receive lower rates of interest compared to open mortgages. You are

unable to pay out a closed mortgage ahead of time without a penalty fees, however you are

able to pre-pay as much as 20% of your original principle amounts annually with a lot of

mortgage lenders.

Closed mortgage terms can range from six months to more than ten years. Such type of

mortgage can only be renegotiated or refinanced before it matures in accordance with its

conditions. This kind of mortgage is much more stable because of its restricted character,

which is the reason interest rates are less than they may be for open mortgages.

http://www.promortgageteam.ca/different-types-of-mortgages

HOW TO IMPROVE YOUR CREDIT SCORE RATING

There are two credit-reporting agencies in Canada, TransUnion and Equifax. The most

common agency used by lenders is Equifax. Some lenders may use both agencies when

processing credit application to detect any discrepancies or error. Federal and provincial

law regulates both agencies. An individual or company can only review your file after

obtaining written permission from you.Credit report

Your credit file is created when first you apply for any kind of credit (be it for a credit card or

a student loan). When you apply for any kind of credit for the first time, your financial

institution will submit your information electronically to both credit agencies (Equifax and

TransUnion). If you did not have a file at all, a file will be created for you. If you had a file

with the credit agencies already, an inquiry will be registered in your file.

The inquiry includes the financial institution name and the date you applied for the credit. If

you were granted a credit, the credit will be registered in your file and if you were declined,

your score will drop a bit as a result of that decline. Your credit report or credit file contains

information about your credit history, your personal information like, your date of birth, social

insurance number, your address, and your occupation.

It will also contain any judgment, bankruptcy or lien placed on your property. You can

always order a copy of your credit report by sending a request to above agencies.

For more info, visit Equifax   or Transunion for your personal credit check.Credit score.

Your credit file has a number called score. Your credit score is a reflection of your payment

history, any derogatory comment and how you use your credit.

Your score fluctuates depending on different activity and information registered on your file.

So, it does not stay the same unless you never use any type of credit or nothing has been

changed on your file.

The higher the score the least risky you are to lenders and the lower the score the more risk

you posses. Generally speaking, lenders put some emphasis on credit score; however,

there are situations that they make exceptions on low credit score. A common myth about

credit score is that every inquiry drops your credit score.

This is not accurate information. Inquiries have minimal effect on your score and some

inquiries have no impact at all. However too many credits request in a short period of time

will prompt lenders to question and wonder if you have any financial difficulty. Furthermore,

credit-reporting agencies do not punish borrowers if they are shopping for the best rate.

A good score that is acceptable by most lenders is 680. But as mentioned above, credit

score fluctuate every month and a borrower with a lower score could increase it by a few

smart transactions.

Using these simple methods keeps your credit at its best rating with the reporting agencies.

How to: Credit Debt Tips: Bring all accounts in arrears up to date

Pay off all collections and monies owing

Do not allow unnecessary credit checks

Pay all bills on time

Reduce your balance on credit cards and line of credit to 50% of the limit

After a short period, your credit score will gradually improve. Always tell the truth as to why

your credit was damaged. Disclose up front to all potential lenders prior to having a credit

report pulled.http://www.promortgageteam.ca/your-credit-file

Mortgage glossary

To help you understand the home buying process better, here is a list of common home

buying and mortgage terms.

A B C D E F G H I J K L M

N O P Q R S T U V W X Y Z

A

Agreement of Purchase and Sale – A legal agreement that offers a certain price for

a home. The offer may be firm (no conditions attached), or conditional (certain conditions

must be fulfilled before the deal can be closed).

Amortization Period – The actual number of years it will take to pay back your

mortgage loan, or the time over which all regular payments would pay off the mortgage.

This is usually 25 years for a new mortgage, however can be greater, up to a maximum of

35 years.

Anniversary – Many mortgage products allow you to make payments against the

principal on the anniversary of the mortgage.

Appraisal – The process of determining the value of property, usually for lending

purposes. This value may or may not be the same as the purchase price of the home.

Appraisal Value – An estimate of the market value of the property.

Assumability – Allows the buyer to take over the seller’s mortgage on the property.

TopB

Blended Payments – Payments consisting of both a principal and an interest

component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the term of the

mortgage. The principal portion of payment increases, while the interest portion decreases

over the term of the mortgage, but the total regular payment usually does not change.

TopC

Canada Mortgage and Housing Corporation (CMHC) – A Crown corporation

that administers the National Housing Act for the federal government and encourages the

improvement of housing and living conditions for Canadians. CMHC is one of two sources

for high-ratio mortgage insurance. The National Housing Act (NHA) authorized Canada

Mortgage and Housing Corporation (CMHC) to operate a Mortgage Insurance Fund which

protects NHA Approved Lenders from losses resulting from borrower default.

Capped Rate – An interest rate with a pre-determined ceiling, usually associated with a

variable-rate mortgage.

Certificate of Location or Survey – A document specifying the exact location of the

building on the property and describing the type and size of the building including additions,

if any.

Certificate of Search or Abstract of Title – A document setting out instruments

registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage – A mortgage agreement that cannot be prepaid, renegotiated or

refinanced before maturity, except according to its terms. A closed mortgage locks you into

a specific payment schedule. A penalty usually applies if you repay the loan in full before

the end of a closed term.

Closing Costs – Various expenses associated with purchasing a home, payable on the

closing date. These costs can include, but are not limited to, legal/notary fees and

disbursements, property land transfer taxes, as well as adjustments for prepaid property

taxes or condominium common expenses, if any.

Closing Date – The date on which the sale of a property becomes final and the new

owner usually takes possession.

CMHC or Genworth Financial Canada Insurance Premium – Mortgage

insurance insures the lender against loss in case of default by the borrower. Mortgage

insurance is provided to the lender by CMHC or Genworth and the premium is paid by the

borrower.

Conditional Offer – An offer to purchase subject to conditions. These conditions may

relate to financing, or the sale of an existing home. Usually a time limit in which the

specified conditions must be satisfied is stipulated.

Condominium Fee – A fee paid by the condo owner that is allocated to pay building

expenses.

Conventional Mortgage – A mortgage that does not exceed 80% of the purchase

price of the home. Mortgages that exceed this limit must be insured against default, and are

referred to as high-ratio mortgages (see below).

Convertible Mortgage - A mortgage that you can change from short-term to long-

term.

TopD

Deed (Certificate of Ownership) – The document signed by the seller transferring

ownership of the home to the purchaser. This document is then registered against the title

to the property as evidence of the purchaser’s ownership of the property.

Default - Failure to abide by the terms of the mortgage; may result in legal action such

asforeclosure.

Deposit – A sum of money deposited in trust by the purchaser when making an offer to be

held in trust by the vendor’s agent, broker, lawyer or notary until the closing of the

transaction.

Down Payment - The buyer’s cash payment toward the property; the difference

between the purchase price and the mortgage loan.

Top

E

Easement - The right to use another’s property for a specific purpose (e.g. a shared

driveway).

Encroachment - A physical intrusion from one property to an adjoining property.

Equity – The interest of the owner in a property over and above all claims against the

property. It is usually the difference between the market value of the property and any

outstanding encumbrances.

TopF

Fire Insurance – Before a mortgage can be advanced, the purchaser must have

arranged fire insurance. A certificate or binder from the insurance company may be required

on closing.

Firm Offer – An offer to buy the property as outlined in the offer to purchase with no

conditions attached.

Fixed-Rate Mortgage – A mortgage for which the rate of interest is fixed for a specific

period of time (the term).

Foreclosure – A legal procedure whereby the lender eventually obtains ownership of the

property after the borrower has defaulted on payments.

TopG

GEMI: GE Capital Mortgage Insurance Company of Canada, a private mortgage insurance

company; one of two sources of high-ratio mortgage insurance.

Gross Debt Service (GDS) Ratio – The percentage of gross income required to

cover monthly payments associated with housing costs. Most lenders recommend that the

GDS ratio be no more than 32% of your gross (before tax) monthly income.

Gross Household Income – Gross household income is the total salary, wages,

commissions and other assured income, before deductions, by all household members who

are co-applicants for the mortgage.

TopH

High Ratio Mortgage – If you don’t have 20% of the lesser of the purchase price or

appraised value of the property, your mortgage must be insured against payment default by

a Mortgage Insurer, such as CMHC.

Holdback – An amount of money required to be withheld by the lender during the

construction or renovation of a house to ensure that construction is satisfactorily completed

at every stage.

Home Equity – The difference between the price for which a home could be sold (market

value) and the total debts registered against it.

Home Insurance - Insurance to cover both your home and its contents in the event of

fire, theft, vandalism, etc. (also referred to as property insurance). This is different from

mortgage life insurance, which pays the outstanding balance of your mortgage in full if you

die.

TopI

Inspection - The process of having a qualified home inspector identify potential strengths

and weaknesses in the property you are interested in so that you may have a good idea of

its functional condition.

Interest Adjustment - The amount of interest due between the date your mortgage

starts and the date the first mortgage payment is calculated from. Avoid it by arranging to

make your first mortgage payment exactly one payment period after your closing date.

Interest Rate - The value charged by the lender for the use of the lender’s money,

expressed as a percentage.

Interest Rate Differential Amount (IRD) – An IRD amount is a compensation

charge that may apply if you pay off your mortgage principal prior to the maturity date or pay

the mortgage principal down beyond the prepayment privilege amount. The IRD amount is

calculated on the amount being prepaid using an interest rate equal to the difference

between your existing mortgage interest rate and the interest rate that we can now charge

when re-lending the funds for the remaining term of the mortgage. For more information,

click on compensation amounts.

Interim Financing – Short-term financing to help a buyer bridge the gap between the

closing date on the purchase of a new home and the closing date on the sale of the current

home.

TopL

Land Transfer Tax, Deed Tax, or Property Purchase Tax - A fee paid to the

municipal and/or provincial government for the transferring of property from seller to buyer.

Legal Fees and Disbursements - Some of the legal costs associated with the sale

or purchase of a property. It’s in your best interest to engage the services of a real estate

lawyer (or a notary in Quebec).

Lien - A claim for money owed by a property owner to a supplier or contractor.

Listing Agreement - A legal agreement between the listing broker and the seller

describing the property for sale and stating the services to be provided and the terms of

payment. A commission is generally payable to the broker upon closing.

Lump-Sum Payment - An extra payment that you make to reduce the amount of your

mortgage. This is the same as pre-paying, which you cannot do if you have a closed

mortgage.

TopM

Maturity Date – Last day of the term of the mortgage agreement, at which time you can

pay off the mortgage or renew it.

MLS® - Multiple Listing Service®, trademarks owned by the Canadian Real Estate

Association. They are used in conjunction with a real estate database service, operated by

local real estate boards, under which properties may be listed, purchased, or sold.

Mortgage - A loan that you take out in order to buy property. The collateral is the

property itself.

Mortgage Broker - A person or company offering mortgage products from several

financial institutions.

Mortgage Critical Illness Insurance – Mortgage Critical Illness Insurance is

available as an enhancement to Mortgage Life Insurance. Mortgage Critical Illness

Insurance is underwritten by the Canada Life Assurance Company. Complete details of

benefits, exclusions and limitations are contained in the Certificate of Insurance. It is

recommended for all mortgagors. It can pay off your mortgage if you are diagnosed with life-

threatening cancer, heart attack or stroke.

Mortgage Insurance - Applies to high-ratio mortgages. It protects the lender against

loss if the borrower is unable to repay the mortgage.

Mortgagee and Mortgagor – The lender is the mortgagee and the borrower is the

mortgagor.

Mortgage Life Insurance – A form of reducing term insurance recommended for all

mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay

the balance owing on the mortgage. The intent is to protect survivors from the loss of their

homes.

Mortgage Rate - The percentage interest that you pay on top of the loan principal.

Mortgage Term – The number of years or months over which you pay a specified

interest rate. Terms usually range from six months to 10 years.

Moving expenses - The cost of hiring packers, movers, or renting a van.

TopO

Offer to Purchase - A legally binding agreement between you and the person who

owns the house you want to buy. It includes the price you are offering, what you expect to

be included with the house, and the financial conditions of sale (your financing

arrangements, the closing date, etc.).

Open Mortgage – A mortgage which can be prepaid at any time, without penalty.

TopP

Payment Frequency – The choice of making regular mortgage payments every week,

every other week, twice a month or monthly.

P.I.T. – Principal, interest and taxes. Together, these make up the regular payment on a

mortgage if you elect to include property taxes in your mortgage payments

Porting – This allows you to move to another property without having to lose your existing

interest rate. You can keep your existing mortgage balance, term and interest rate plus save

money by avoiding early discharge penalties.

Pre-Approved Mortgage - Qualifies you for a mortgage amount before you start

shopping.

Pre-Approved Mortgage Certificate - A written agreement stating that you will get

a mortgage for a set amount of money at a set interest rate.

Prepaid Property Tax and Utility Adjustments - The amount you will owe if the

person selling you the home has prepaid any property taxes or utility bills.

Prepayment Charge – A fee charged by the lender when the borrower prepays all or

part of a closed mortgage more quickly than is set out in the mortgage agreement.

Prepayment Option – The ability to prepay all or a portion of the principal balance.

Prepayment charges may be incurred on the exercise of prepayment options.

Principal – The amount of money borrowed for a new mortgage.

Property Survey - A legal description of your property and its location and dimensions

(usually required by your mortgage lender).

TopR

REALTOR® - Trademark identifying real estate professionals in Canada who are

members of the Canadian Real Estate Association, and as such, who subscribe to a high

standard of professional service and to a strict code of ethics.

Refinancing – Renegotiating your existing mortgage agreement. May include increasing

the principal or paying out the mortgage in full.

Renewal – At the end of a mortgage term, the mortgage may “roll over” on new terms and

conditions acceptable to both the lender and the borrower. This is known as renewing a

mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower

may seek alternative financing.

TopS

Sales Taxes - Taxes applied to the purchase cost of a property. Some properties are

exempt from sales tax and some are not. For instance, residential resale properties are

usually GST exempt, while new properties require GST.

Service Charges – Extra costs incurred when hooking up hydro, gas, phone, etc. to a

new address.

Second Mortgage – Additional financing, which usually has a shorter term and a higher

interest rate than the first mortgage.

Security – In the case of mortgages, real estate offered as collateral for the loan.

TopT

Term – The length of the current mortgage agreement. A mortgage may be amortized over

a long period (such as 40 years) with a shorter term (six months to five years or more). After

the term expires, the balance of the principal then owing on the mortgage can be repaid or a

new mortgage agreement can be entered into at the then current interest rates.

Total Debt Service (TDS) Ratio – The percentage of gross income needed to cover

monthly payments for housing and all other debts and financing obligations. The total

should generally not exceed 37% of gross monthly income.

Top

V

Variable Rate Mortgage – A mortgage for which the rate of interest may change if

other market conditions change. This is sometimes referred to as a floating rate mortgage.

Vendor Take-Back Mortgage - When the seller provides some or all of the mortgage

financing in order to sell the property.

Introduction of TMB

The history of Tamilnad Mercantile Bank Ltd., the then Nadar Bank Ltd., dates back to 1921. The thought of establishing a bank under the guidance of the able Nadar business community was mooted out in the Anniversary of Nadar Mahajana Sangam held at Tuticorin in 1920. The proposal was effected soon. The bank was registered on May 11, 1921as “The Nadar Bank Ltd”.A group of dedicated men with shrewd acumen and sound integrity had been constituted as Board of Directors and they elected Shri M.V. Shanmugavel Nadar as Chairman on Nov 04, 1921. The bank was opened by Shri T.V. Balagurusamy Nadar, the then President of the Nadar Mahajana Sangam and the bank threw open its door to the public on Nov

11, 1921 at 9am in Ana Mavanna Building at South Raja Street, Tuticorin.http://www.tmb.in/about_profile/answer_to_all_your_questions_about_us.html

http://business.mapsofindia.com/banks-in-india/tamilnad-mercantile-bank.html

http://www.deal4loans.com/Contents_Loan_Against_Property_Faqs.php

http://www.moneysupermarket.com/mortgages/advantages-and-disadvantages/

Our easy mortgage loan can be availed based on collateral security of any marketable property owned by the loan applicant for any purpose. This scheme offers loans upto a maximum of Rs. 50 Lakhseither in the form of OD Limit / Term Loan or Combination of both with interest on diminishing balance. Repayment period under term loan can be selected upto 60 months.Purpose

To Provide hassle-free finance to borrowers to be used for productive purposes other than speculative purpose like purchase or investment in land, stock & shares.

Eligibility

Individual / Joint, Sole Proprietary Concerns, Partnership firms. The facility under the scheme shall not be extended to NBFC, Money Lenders, Private Bankers, Chit Fund Companies and Stock Brokers.

Loan Quantum

50% of the value of easily saleable immovable property*. Either in the form of Over Draft Limit / Term Loan or Combination of Both: Up to a maximum ofRs. 50 Lakhs. (*) Valuation of property based on the Distressed Sale Value should be obtained from at least two approved valuers in addition to the independent valuation of the Manager. Panel Engineer’s Valuation or Manager’s Valuation whichever is lower will be taken in to account.

Repayment Capacity

The Sanctioning Authority shall ensure that the borrower has sufficient income to service the existing and proposed debt obligations by verifying the necessary documents.

Repayment

Working capital limit - One year.

Term Loan - Repayment period shall be fixed on the basis of income generation of

the borrower up to a maximum of 60 months.Margin

50%.Security

Land and Building property for value not less than 200% of the loan amount.

Collateral : Agricultural land should not be taken as collateral security. Third party

security should not be accepted except those of the family members.

Personal guarantee of mortgager should be obtainedOther Conditions

Registration of Memorandum of Title Deeds under the respective State’s Stamp Act

should be insisted upon and it should be mandatory.

In respect of property situated in other states where law for Registration of

Memorandum of Deposit of Title Deeds under the respective states stamp Act is not

enacted, registered mortgage should be insisted upon.Insurance

Insurance for the full market value of the property with the Bank Clause.Rate of Interest

BR + 5.75% (16.35% p.a.).

Current Base Rate for Lending (BR) is 10.60% p.a.Penal Interest

Any irregularity or default in repayment will attract penal interest of 2.00% p.a. over and above the above rate of interest on the balance outstanding.

Processing Charges

Term Loan: 1.00% of Limit sanctioned without any maximum cap.

Working Capital [Fund and Non-Fund Based]: 0.50% of the loan amount without

maximum cap.Documentation

Usual documents as per our Bank norms.Submission of Stock Reports

Not Applicable.

All the above Terms and Conditions are subject to change and sanctioning of the loans is at the sole discretion of the Bank. Service Tax on All Service Charges extra wherever applicable.

Achievements:The Tamilnad Mercantile Bank has a series of achievements and awards to its credit. In the Financial Year 2008-2009, the bank has received a few recognitions and appreciations. To begin with, the bank topped the list among 15 other banks in terms of performance in accordance to its Savings Bank Account in 2008. This was certified by a recognized agency of the Indian Banks Association.

Apart form this; the Tamilnad Mercantile Bank was also awarded the Dun & Bradstreet's Banking Awards for the best Indian Banks of the year 2009. The award was given for the Private sector bank in the rural category.

FAQs on Loan Against PropertyWho can avail a Mortgage Loan?

Both Salaried as well as Self-Employed people can avail Mortgage Loan, irrespective of the income.

Which factors determine the eligibility of a mortgage loan?

The general factors taken into account while determining the eligibility of loan against property are listed below:1. Income2. Age (Min. 21 Years)3. Property Valuation

4. Existing Liabilities (if any)5. Current Work Experience6. Financial Documents7. Number of Dependants

How much loan can I get?

You can get a LAP up to 80% of the registered value of your property depending on the Bank’s policy and the property type and valuation.

How would the value of my property be determined?

The value of the property would be determined through a valuation conducted by the Loan Provider.

What is the difference between a Home Loan and Loan against Property?

There is a huge difference between a Home Loan and a Loan against property. Home Loan is taken only for the purpose of buying a residential property whereas a Loan against Property can be taken for any purpose.

What are the stages involved in availing the loan?

1. Application2. Processing3. Documentation4. Verification/Valuation5. Sanctioning of the Loan6. Disbursement

Is there any processing fee charged by the Bank?

Yes, a nominal fees and charges are to be paid to the Bank depending upon their term and conditions.

What are the documents required for applying for a loan against property?

For Salaried:1. Application form with photograph2. Identity and Address Proof3. Latest Salary Slips4. Form 165. Bank Statements (Last 6 months)6. Processing fee cheque

For Self-Employed:1. Application form with photograph

2. Identity and Address Proof3. Proof of business existence & Education Qualifications.4. Last 3 years ITR5. Last 3 years P&L and Balance Sheet6. Bank Statements (Last 6 months)7. Processing fee cheque

How much time does the Bank take to disburse the loan?

The processing of the loans usually takes 7 to 10 working days once all the documents are submitted. It also depends upon your profile and documentation.

Does the property have to be insured?

Yes the property has to be insured against fire, flood, earthquakes and other appropriate hazards during the tenor of the loan.

How can I repay my loan?

The repayment of loan is done through Equated Monthly Installments. It can be paid through Post Dated Cheques (PDC) or Electronic Clearance System (ECS)

Can I pre-pay my loan?

The loan against property can be pre-paid along with the pre-payment charges. Usually the bank charges 2% of the principal pre-paid.

Advantages and disadvantages of mortgages

By  Clare Francis

For the vast majority of people, it’s impossible to buy

a home without a mortgage.  Getting hundreds of

thousands of pounds together to put down as one

lump sum is a privilege reserved for very few.

As it stands, it’s as much as most homebuyers can do to

scrape together a deposit. The rest has to be borrowed

from a bank or building society.  Fortunately, there are

hundreds of lenders offering a whole range of different

types of mortgages.  Whether you are buying your first

home, remortgaging or moving up the property ladder,

there should be a home loan suitable for you.

Most mortgages are now only offered on a repayment

basis which means you repay part of the capital and the

interest every month. At the end of the term, which is

usually between 25 and 30 years, your mortgage debt will

have been totally repaid. Some lenders allow you to take

out an interest-only mortgage which means that your

monthly payments only cover the interest. You therefore

need to have a plan in place so that you can afford to

repay the amount you initially borrowed in full, at the end

of the term.

Many major lenders have withdrawn from the interest-only

market, while others have tightened their criteria making

them harder to get because of concerns that thousands of

people have interest-only mortgages with no means of

repaying them.

Opting for interest-only might seem attractive because

your monthly repayments will be lower than with a

repayment mortgage, but unless you have a solid plan to

pay back the capital it’s best to go for a repayment loan.

Advantages of a mortgageA mortgage makes home ownership affordable:

Buying a home is likely to be the biggest purchase you’ll

ever make and a mortgage will be your largest debt.

Because you can spread the repayments on your home

loan over so many years, the amount you’ll pay back

every month is more manageable, and affordable!

Traditionally, when people take out their first mortgage,

they’ve tended to opt for a 25 year term. However, there

are no rules about this and as we are living longer and the

retirement age is going up, 30-year mortgages are

becoming more common. This can help bring your

monthly payments down, but on the flip side you’ll be

saddled with the debt for longer. 

It’s worth going for the shortest term you can afford – not

only will you be mortgage-free sooner but you’ll also save

yourself thousands of pounds in interest. And don’t forget,

when you remortgage and switch to a new product, you

shouldn’t opt for another 25 or 30 year term. For example,

say you take a five-year fixed rate deal as your first

mortgage and borrow the money over a 25-year term.

When you come to remortgage five-years later, you

should aim to take that mortgage out over 20 years. 

 

There are two basic types of mortgages available – repayment, or interest-only.A mortgage is a cost-effective way of borrowing:

Interest rates on mortgages tend to be lower than any

other form of borrowing because the loan is secured

against your property.  This means the bank or building

society has the security that if it all goes wrong and you

can’t repay it there is still something valuable – your

property – to sell to pay back some if not all the

mortgage. 

Interest rates on mortgages are constantly changing –

over the years they’ve been higher than 15% and lower

than 2%.  Fixed rate and tracker mortgages tend to be the

most popular, but there are also discount and offset

mortgages, plus products aimed at first time buyers and

landlords. Our guide on different types of mortgages

explains these in more depth. 

There are a number of government schemes available to

help people buy their first home such as Help to Buy,

Funding for Lending and NewBuy.  Some shared-

ownership schemes where you only buy part of the

property and rent on the proportion you don’t own yet are

run by the local council or housing trusts.

Disadvantages of a mortgageYou’ll pay back A LOT MORE than you originally borrowed:

The most obvious disadvantage is that you are carrying

an enormous debt over a long time.  The other major

drawback is that since the mortgage is secured on your

property, you have to be able to keep up with your

mortgage repayments or you could lose your home.

During the credit crunch, lenders worked hard at keeping

even those struggling with the mortgage in their home. 

But if homeowners really can’t make the repayments, their

home will be repossessed.  The bank or building society

will then sell it to recover their money.

Although the monthly amount you’re paying may seem

reasonable, the total amount you pay back over the years

is huge.  For example, someone who borrowed £160,000

over a 25-year term would repay £280,600 in total once

interest is added on! (This assumes the rate of interest

averages 5% over the term.)Watch out for fees:

It’s not only the cost of interest that mounts up when you

have a mortgage. Fees can also be hefty. There will be

set up costs each time you take out a new mortgage and

these vary significantly but some are as high as £2,000.

You’ll also incur conveyancing costs (conveyancing is the

legal work required when you take out a mortgage); and

there are penalty fees to watch out for if you need to get

out of your mortgage deal early.

Our guide on mortgage charges looks explains these fees

in more detail.

 Different types of mortgages

By  Clare Francis

There is so much choice when it comes to picking a

mortgage, that it can seem totally baffling. Not only do

you have to work out which mortgage will be the

cheapest for you, which means looking at interest

rates and fees, but there are also different types of

product available.

So should you go for a fixed or variable rate deal? And

what about offsets?

Here we explain the differences in order to help you work

out which is the right type of mortgage for you.

Fixed rate mortgage

The interest rate remains the same throughout the period

of the deal – typically one to five years, though it is

possible to get ten year fixed rates. If you opt for a fixed-

rate, you’ll have the security of knowing exactly how much

your mortgage will cost you for a set period of time. Advantages

Your mortgage payments will remain the same, even if

interest rates changed. This makes it great for budgeting. Disadvantages

You are tied in for the length of the deal, so if interest

rates fall you can’t take advantage of them. For example,

if you opt for a five year fixed-rate deal, you will be tied in

until the fixed term ends. If you want to get out of the

mortgage before then, you’ll be charged a hefty penalty –

often thousands of pounds.

So before you apply for a fixed rate mortgage, think about

how long you are happy to be locked in for. 

Tracker mortgage

The interest rate on a tracker mortgage is linked to the

Bank of England base rate. So if the base rate changes,

your mortgage rate will change.

The base rate is currently 0.50%, so if you took a tracker

mortgage with a rate that is 2% above the base rate you’ll

be paying an interest rate of 2.50% . If the Bank of

England put the base rate up to 1%, your mortgage rate

would increase to 3.00%. This would add about £25 a

month to the repayments on a £100,000 mortgage.

As with fixed rate mortgages, trackers are available over

different terms: most commonly two or five years. With

these deals, you’ll be charged a penalty if you want to get

out of the mortgage during the term.

You can also get lifetime, or term, trackers and these are

often completely penalty free so they are very flexible and

can be a great option if you don’t want to be tied into your

mortgage.Advantages

The rates on the leading tracker mortgages tend to be

lower than on fixed rate deals. 

Although trackers are variable rate mortgages, it’s easy to

understand what rate you’ll be paying because they are

directly linked to the base rate. Therefore, the rate, and

your monthly payments, will only change if the Bank of

England changes the base rate.Disadvantages

You don’t have the same security with a tracker that you

get with a fixed mortgage because the rate is variable.

This means you have to be prepared for the fact that your

monthly repayments could go up – and it’s really

important to make sure you’ll be able to still afford your

mortgage if this happens. If money is tight and you need

to budget carefully, a fixed rate mortgage will probably be

a better option.Discount mortgage

Trackers aren’t the only type of variable mortgage.

Discounts are another. However, unlike trackers the

interest rate isn’t linked to the Bank of England base rate.

Instead, it’s linked to the lender’s standard variable rate

(SVR) and this is a significant difference because lenders

can change their SVR even if there has been no change

in the base rate.

A number of lenders have done this over the past year or

so, and have increased their SVRs. This means their

customers with discount mortgages have seen their

repayments go up even though the Bank of England base

rate hasn’t changed since March 2009.

Discount mortgages are available over different terms –

typically one to five years – and as with trackers and fixed

rate deals you will probably be charged a penalty if you

want to get out of the deal during the term.

 

There is a range of different types of mortgages on the market, so the choice can seem bafflingAdvantages

As with tracker mortgages, the rates tend to be lower than

those on fixed rate mortgages. And because discounts

are variable, the rate could fall as well as rise. If the rate

were to fall, your monthly mortgage payment would

reduce.Disadvantages

The way discount mortgages are priced isn’t as

transparent as tracker mortgages. Because the rate is

linked to the SVR, not the base rate, the lender can

theoretically change the rate at any time. So you may find

your monthly mortgage payments rises when you’re not

expecting it.

Before you take a discount mortgage out, make sure

you’d still be able to afford your repayments if the rate

was to go up. If it would be a struggle, opting for the

security of a fixed rate would be a better option.Offset mortgage

This is a more complicated mortgage as it links your

savings to your mortgage debt.

Rather than earning interest on your savings, that money

is set against your mortgage so you pay less interest on

that debt.  For example, say you have a £100,000

mortgage and £20,000 in savings, you would only be

charged interest on £80,000 of the mortgage. However,

your monthly mortgage repayments will have been

calculated as if the debt was £100,000. This means you

end up paying more than you need off your mortgage

each month. As a result you clear your mortgage off more

quickly and save yourself thousands of pounds in interest.

Some lenders give the option of reducing the monthly

payments so that they are calculated on the mortgage

amount once your savings are factored in. So with the

example above, your repayments would be based on a

£80,000 mortgage.  This can be good if you want to save

money now, but it won’t help if you are considering an

offset to pay your mortgage off more quickly.

If you are considering an offset, you will have the choice

of fixed or variable rate products, so consider the

advantages and disadvantages of those as discussed

above. Also, some offset providers will let you link your

current account to your mortgage as well as your savings.Advantages

As well as enabling you to knock years off your mortgage

and save you thousands of pounds in interest, offset

mortgages also offer a significant tax benefit.

Ordinarily, you pay income tax on any interest you earn

on your savings. However, if you offset you have an offset

you don’t earn interest on your savings so there is no tax

to pay. An offset can therefore be particularly attractive for

people in the higher or top rate tax brackets.Disadvantages

The rates on offset mortgages tend to be higher than

those on standard mortgage products so if you only have

a small amount in savings, you may be better off just

taking a normal mortgage and finding the most

competitive savings rate you can.

Hopefully, this guide has helped you get to grips with

mortgages a bit more, but if you are still unsure about

what type of deal to go for, speak to an independent

mortgage advisor. We’re partners with L&C Mortgages,

which is a fee-free broker, so you can call them on 0844

776 1952 for more help. It’s well worth getting it right

when it comes to your mortgage as it could save you

thousands of pounds!

 

There is so much choice when it comes to picking a

mortgage, that it can seem totally baffling. Not only do you

have to work out which mortgage will be the cheapest for

you, which means looking at interest rates and fees, but

there are also different types of product available.

So should you go for a fixed or variable rate deal? And

what about offsets?

Here we explain the differences in order to help you work

out which is the right type of mortgage for you.

How does interest on mortgages work?

By  Clare Francis

When choosing a mortgage, the interest rate you’ll be

charged is one of the most important factors.

On the whole, the lowest interest rates are available to

borrowers who have large deposits, or in the case of

those remortgaging, significant equity in their property.

Typically, you’ll need at a deposit of at least 40% to be

eligible for one of the best rates. If you have only 10%,

there are mortgages available but you’ll probably pay a

higher rate.

This is advertised as loan-to-value (LTV).  So if you see a

mortgage with a 60% LTV it means you can borrow up to

60% of the property’s value.  In other words, the minimum

deposit you’ll need to put down is 40%. A mortgage with a

maximum LTV of 90% is available to those with a deposit

of 10% or more.

The good news is, mortgage rates have been falling and

the cost of 90% deals has come down even though the

rates are still higher than those on 60% products. 

Don’t only look at the interest rate, though, you need to

take the fees into account too.  Our guide on fees will tell

you more.

How does a mortgage work?

Your mortgage is made up of the capital – the amount

you’ve borrowed – and the interest charged on the loan. 

With most mortgages you pay off the capital and interest

monthly over 25 or 30 years, which is why they’re called

repayment mortgages.

In the early years, most of your payments go to paying off

the interest with a smaller part reducing the capital.  As

you get nearer to the end of the term, it switches so that

you’re paying more off the capital each month.

You can opt for an interest-only mortgage where, as the

name suggests, you just pay the interest every month.

However, you’ll have to pay off the capital eventually so

it’s important to have a repayment plan in place. The

number of lenders offering interest-only mortgages has

reduced over the last few years because there are

concerns that many of those who have them have no

repayment plan in place and could be left unable to pay

back the capital at the end of the term.  

 

The interest you pay on your mortgage will depend on what type of home loan you pick

Whichever type of mortgage you have, the interest can be calculated daily, monthly, quarterly or

annually. Daily interest is best as the amount of interest is calculated on the outstanding

balance every day. As your balance falls, so does the amount of interest you’re paying.

With the others your balance is only reduced at the end of

the month, quarter or year.  With annual interest, for

example, the interest is still calculated daily but it’s based

on the previous year’s balance, so it takes a year before

the capital amount is reduced.How to reduce the interest

Firstly, you need to keep an eye on the interest rates on

offer. These change constantly. If you’re on a deal where

your interest is fixed for a number of years, start looking

around for a new mortgage about three months before it

ends. It’s not usually worth switching to a cheaper rate

before then as you’ll pay a penalty for leaving a deal early.

Obviously, the quicker you can pay off your mortgage the

less interest you’ll pay.  Most mortgages are for 25 to 30

years.  When you switch your mortgage or move to a new

home, see whether you can afford to reduce the number

of years, say to 15 years.  Our calculator will tell you how

much your monthly payments will be if you borrow for a

shorter term.

For example, if you have a £160,000 repayment mortgage

charging 5% interest, it would cost you £935.34 a month

over 25 years. If you shortened it to 20 years the monthly

repayments would rise to £1,055.93 but you’d save

yourself £27,719 over the term.

Another way is to overpay– even £100 extra a month can

make a huge difference. But make sure your lender allows

you to make overpayments without charging you a

penalty. Most will allow you to pay 10% extra off your

mortgage fee-free each year. Also, time your payments to

reach the lender just before the interest is calculated

depending on whether it’s monthly, quarterly or yearly. If

you’re on daily interest the timing is doesn’t matter.

 Mortgage charges explained

By  Clare Francis

When choosing a mortgage you’re faced with a

confusing array of different products.  Most people

base their decision on the interest rate being charged,

the number of years the rate is available and the type

of mortgage it is.

But before you plunge ahead, you should stop and look at

the fees.  While interest rates have tumbled over the past

few years, mortgage-related fees have shot up and can

now easily add another £2,000 onto the overall cost of

your mortgage.

To make matters worse there’s a whole list of charges

and different lenders can have different names for each.

Here’s a rundown of what you need to know.

Fees charged when you apply for a mortgageBooking fee:

A booking fee is charged upfront and pays for ‘booking’

the loan while your application goes through.  It can also

be known as an ‘application’ or ‘reservation’ fee. A

booking fee is usually around £99 but can be slightly

higher while some lenders don’t charge it at all.  It won’t

be refunded if you end up not taking the mortgage out.Arrangement fee:

An arrangement fee is what you pay for the lender to set

up your mortgage. Arrangement fees vary significantly

and you could be charged up to £2,000, although the

average is about £1,000.

You can usually choose between paying the arrangement

fee upfront and adding it to the mortgage but it will

ultimately cost more to do the latter as you will pay

interest on it.

Some arrangement fees are charged as a percentage of

the loan, rather than a flat fee.  Percentage fees are bad

news for those taking out a large mortgage.

It’s really important not to overlook the arrangement fee

when you’re comparing mortgages as it can have a

significant impact on the total cost of the deal. In some

cases it can be worth opting for product with a slightly

higher interest rate in return for a lower fee, than going for

the lowest rate if the arrangement fee is really high.

 

Arrangement mortgage fees have shot up over the past decadeValuation fee:

This pays for your lender’s survey on the property you

want to buy. This is a basic survey which is only to check

the property is adequate security for the loan.  The cost of

a valuation fee varies considerably and some mortgages

even come with free valuations.Legal fees:

Legal fees pay for a solicitor to do the legal paperwork for

you – a process known as conveyancing – and are

usually charged as a percentage of the mortgage price. If

you are buying a home, the legal fees will include the cost

of Stamp Duty and search fees. Mortgage lenders often

have offers where they contribute to these fees or will pay

the standard legal fees.Higher lending charge (HLC):

Higher-lending charges were commonly charged on

mortgages that cover a particularly high proportion of the

purchase price (known as a loan to value – or LTV). The

money from the HLC is often used by the lender to buy an

insurance policy which protects itself (not you!) should you

default on the mortgage. Since the amount you have

deposited is only small, this covers the lender if your

property falls in value after you buy it.

The HLC is usually refundable if you don’t go ahead with

the mortgage and expressed as a percentage of the loan.Other fees

Advice fee:  You may have to pay a fee for mortgage

advice if you use a financial advisor, but it’s possible to

find one that doesn’t charge.  Our mortgage partner,

London & Country is an independent mortgage broker that

offers fee-free telephone advice whether you proceed with

the application or you don’t. You can contact them on

0844 209 8725.

CHAPS fee: This covers the lender’s costs when sending

the mortgage funds over to your solicitor.

Own building insurance fee:  This is charged by your

mortgage lender for checking you have taken out building

insurance if you choose not to buy it from them. The fees

are fairly small – around £25 to £50 each.Fees charged after you have a mortgage

APR:

All mortgages have an APR (annual percentage rate). The

APR is calculated to factor in the total interest cost over

the 25-year term, plus any fees. 

In theory this should help you to compare deals. 

But mortgage APRs can be a bit confusing because they

only give you the average cost if you were to keep your

mortgage for the full 25 years, which is pretty unlikely.

You might, for example, have a two-year fixed rate

mortgage at 1.65%, which then moves to the Standard

Variable Rate (SVR) of 4.49%. This would give you an

APR of 4.2% - but you’d never actually pay that rate.

So it’s always better to simply compare the initial rate

you’ll pay and also check what the SVR will be when that

rate comes to an end. Early repayment charges (ERC):

Most mortgage deals tend to have a short life. For

instance, fixed rate, discount and tracker mortgages

usually only run for between two and five years, though it

is possible to find deals over 10 years. Whatever the term,

if you come out of the deal before it ends, you will have to

pay an Early Repayment Charge which, in most cases, is

charged as a percentage of the loan. These can add up to

thousands of pounds so make sure you think carefully

about how long you tie in for in the first place.Exit fee:

An exit fee is charged for closing your mortgage account –

for example, if you switch to another lender or remortgage

to another deal with the same lender. But it can also be

charged when you just finish paying off your mortgage.

Also known as a mortgage completion fee, deeds release

fee or exit administration fee, the cost can now ring in at

between £50 and £200. 

 

What is a buy-to-let mortgage?

By  Clare FrancisWhat is a Buy-to-Let Mortgage?

Buying a property to rent out can be an excellent way to

generate an income for the present and invest for the

future. But if you can’t afford to buy outright, you will need

a buy-to-let mortgage rather than a conventional

mortgage.What is a buy-to-let mortgage?

As is obvious from the name, buy-to-let mortgages are for

homes that you buy to let out. They work in the same way

as standard mortgages, although rates are higher,

typically by around 1% or 1.5%, as there is a greater risk

to the lender. This is because landlords usually rely on

rent from their tenants to cover their mortgage costs, and,

if there is a long period when they don’t have a tenant,

usually known as a ‘void’ period, there is a risk of them

defaulting on the mortgage.

You also usually have to put down a bigger deposit than

you would have to with a standard mortgage, typically

around 25%, whereas if you were buying a home to live

in, you can put down as little as 5%.

However, never be tempted to opt for a standard

mortgage and then rent the property out, as you will

effectively be committing mortgage fraud. If the lender

finds out they could withdraw any special rate you might

have been on, change the terms and conditions of your

mortgage or even refuse to continue lending to you.

Bear in mind that you are unlikely to be offered a buy-to-

let mortgage unless you already own your own home, and

some lenders also have a minimum income requirement,

so you may struggle to get one if you earn less than

around £25,000 a year.How much can I borrow?

With standard mortgages, the amount you can borrow is

linked to your income, so you can usually borrow around

three times’ your salary, although this will vary depending

on which lender you go to. 

But on top of this, when you take out a buy-to-let

mortgage, the amount you can borrow is also linked to the

level of rent your property is likely to generate. Usually the

rental income must equate to a sum that is between 25%

and 30% higher than your monthly mortgage repayments.

This is calculated on an interest-only basis however which

is how buy-to-let mortgages tend to be offered.

If you aren’t certain what sort of rent any property you are

interested in might generate, contact lettings agents in the

area and ask how much you might be able to charge. It’s

also worth scouring local property magazines and

newspapers to give you an idea of the sort of rents similar

properties command.Compare rates

Most of the major banks and building societies offer buy-

to-let mortgages, and a number of specialist lenders

provide them too. But never just opt for the first buy-to-let

mortgage you find, as rates vary widely and you may be

able to find a much cheaper deal elsewhere. 

Always compare several different deals before applying

and, if you’re uncertain, speak to a specialist buy-to-let

mortgage broker to ensure you find the right deal to suit

you. Remember to check any arrangement fees too, as

these can add substantially to the overall cost of any

mortgage deal.

http://www.moneysupermarket.com/mortgages/

what-is-a-buy-to-let-mortgage/

Adjustable-rate mortgages

Advantages

Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.

Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates -- and their monthly payments -- fall.

Help borrowers save and invest more money. Someone who has a payment that's $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.

Offer a cheap way for borrowers who don't plan on living in one place for very long to buy a house.

Disadvantages

Rates and payments can rise significantly over the life of the loan. A 6 percent ARM can end up at 11 percent in just three years if rates rise sharply.

The first adjustment can be a doozy because some annual caps don't apply to the initial change. Someone with an annual cap of 2 percent and a lifetime cap of 6 percent could theoretically see the rate shoot from 6 percent to 12 percent a year& after closing if rates in the overall economy skyrocket.

ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.

On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That's because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance