Housing Finance

Housing finance involves understanding the various aspects of securing and managing a mortgage for purchasing property.

Factors to Consider When Choosing a Mortgage

Interest Rate

• Definition: The cost of borrowing money, usually expressed as a percentage of the loan.
• Example: A lower interest rate can significantly reduce the overall cost of the mortgage.

Incentives Offered

• Definition: Benefits provided by lenders, such as cashback or reduced fees.
• Example: A lender offering 2% cashback on the mortgage value.

Early Repayment Charge

• Definition: Fee charged for paying off the mortgage earlier than the agreed term.
• Example: A charge of 1-2% of the outstanding mortgage for early repayment.

Break from Repayments Charge

• Definition: Fees for pausing repayments, typically during financial hardships.
• Example: Payment holidays with potential interest charges during the break.

Type of Interest

• Definition: The method by which interest is calculated and applied to the mortgage.
• Example: Choosing between fixed, variable, or tracker interest rates.

Types of Interest

Fixed Rate

• Definition: Interest rate remains constant for a specified period.
• Advantages: Predictable repayments, unaffected by rate changes.

Variable Rate

• Definition: Interest rate fluctuates based on the lender's standard variable rate.
• Advantages and Disadvantages: Repayments can increase or decrease, making budgeting unpredictable.

Tracker Rate

• Definition: Interest rate is a set percentage above a specific base rate (e.g., ECB rate).
• Advantages: Benefits from lower rates when the base rate falls.

Break from Repayments Charge

• Definition: Fees for pausing repayments, typically during financial hardships.
• Example: Payment holidays with potential interest charges during the break.

Type of Interest

• Definition: The method by which interest is calculated and applied to the mortgage.
• Example: Choosing between fixed, variable, or tracker interest rates.

Conditions to Qualify for a Mortgage

Amount to be Borrowed

• Definition: The total sum of money required for the property purchase.
• Consideration: Based on property value, income, and ability to repay.

Deposit

• Definition: Initial payment made towards the property purchase.
• Example: Typically 10-20% of the property's value.

Credit History

• Definition: Record of an individual's past borrowing and repayments.
• Importance: Determines the borrower's creditworthiness and risk to the lender.

Length of the Mortgage

• Definition: The duration over which the loan is to be repaid.
• Consideration: Longer terms mean lower monthly repayments but more interest overall.

Good Investment

• Definition: Assessment of the property's potential to maintain or increase in value.
• Consideration: Factors like location, property condition, and market trends.

Insurance Requirements

• Definition: Insurance policies required as part of the mortgage agreement.
• Example: Home insurance and mortgage protection policy.

Types of Mortgage

Annuity/Repayment Mortgage

• Definition: Regular payments of both capital and interest.
• Advantage: Mortgage is fully paid off at the end of the term.

Endowment Mortgage

• Definition: Interest-only payments with a separate endowment policy to repay capital.
• Risk: Relies on investment performance of the endowment policy.

Pension Mortgage

• Definition: Similar to an endowment mortgage but linked to a pension fund.
• Consideration: Suitable for those with stable pension plans.

Mortgage Protection Policy (Life Assurance)

• Definition: A policy that pays off the remaining mortgage in the event of the policyholder's death.
• Importance: Ensures that dependants are not burdened with mortgage payments after the borrower's death.