Mortgage: Fixed Rate or Not?
by Adam Ferguson
Many folks across the USA are starting to realize why the interest rates on their home mortgages were lower if they took an ARM loan. The answer is simple. A loan that is fixed for a short period of time (ARM loan) has a much higher level of risk. This means a lower interest rate and lower monthly payments for those willing to take that risk. Many homeowners are now scrambling to find some way to keep their home as these low rates have now adjusted and are no longer low fixed interest rates. These consumers took an adjustable rate mortgage that may have been fixed for as short as one month and as long as 10 years. The risk is not simply related to what future interest rates will be; the risk is whether you will be able to refinance your mortgage at a future date. Many Americans are now starting to understand that risk, which they never even considered.
Self-employed homeowners are now finding out that a stated income loan is basically no longer available. Here is a quick example of a scenario for someone that is currently in a stated income ARM. A small business owner may have taken out an adjustable rate mortgage (ARM) and made all of their payments on time for the lower interest rate 7 year fixed period of their loan. This borrower now wants to refinance and can no longer get a loan without providing income documentation and/or qualifying under a full doc scenario. Ouch! This homeowner is now left to make payments on a loan that may have gone from 6.5% to 9.5% or higher. This loan may keep adjusting every 6 months or 1 year and may go as high as 12.5%. The change in payment is dramatic, thus affecting the entire economy for obvious reasons. Does this homeowner now sell their home? Do they ride it out? Do they change the way their income is documented and start paying themselves W-2's so that they can refinance in 2 years? These are tough questions and the answer will be different for everyone. These however are questions that could have been avoided.
Fixed rate mortgages are an ever stable and ever predictable product. It is a lesson that we can learn from our parents or even grandparents. The older generations were slow to act, fiscally conservative, and opted for things that they completely understood, things that did not have unknown future outcomes. The new generations of Americans dabbled in some slightly higher risk endeavors. I think and hope that we as a nation have grabbed the hot stove, and hopefully learned some tough financial lessons. The dot com bubble, Enron, the real estate bubble, all could have been avoided if we understood and listened to the lessons of history and the lessons of older generations.
There is plenty of blame to go around. The bottom line is very simple. Capitalist economies provide products that people will buy. If people do not like a product it goes away. The same applies to mortgages. There was a want for many mortgage products that held a high level of risk for both the consumer as well as the company providing them. Capitalism proves itself again as these loans become less available and guidelines get tougher. Products that prove themselves over time, have demand, and can make a company money will prevail. The fixed loan is the original mortgage in the United States for good reason. It has withstood recessions, booms, and it is still the safe, sensible, and I would argue "right" way to mortgage a loan. Fixed rate or no rate at all is the new calling for homeowners and new home buyers across the USA.
Jul 20, 2008
Jul 9, 2008
Mortgages: Fixed Mortgage Rate
Mortgages: Fixed Mortgage Rate
by Harley Rolland
Your mortgage loan has a significant role to play in your financial life. You might be already confused whether to go for fixed mortgage rate or adjustable mortgage rate. Well-wishers might also add to your confusion, when they advice you to go with fixed mortgage rate saying that it entails lower risk than a variable rate. Why is this so? Read on to know why it is considered the best mortgage rate.
Here is how you benefit if you choose a fixed mortgage rate:
by Harley Rolland
Your mortgage loan has a significant role to play in your financial life. You might be already confused whether to go for fixed mortgage rate or adjustable mortgage rate. Well-wishers might also add to your confusion, when they advice you to go with fixed mortgage rate saying that it entails lower risk than a variable rate. Why is this so? Read on to know why it is considered the best mortgage rate.
- Advantages & Disadvantages:
Here is how you benefit if you choose a fixed mortgage rate:
- Interest rate of this program gives you the peace of mind to plan your repayment.
- As your monthly payment does not change, you can use your funds more effectively.
- If you take a program when the market offers high competition, you might even get offered the 'golden' chance of getting a fixed rate that is lower than adjustable rate (note that the fixed rate is always taken as higher than adjustable rate).
- Fixed loans are the best for salaried people on a tight budget. A fixed-rate mortgage is also a better option than an adjustable loan for young people and first-time buyers.
- The interest rate of fixed loans is higher than that of the adjustable mortgage loan.
- The fixed loan's interest rate is fixed for about 2-3 years and then reviewed as per the market. So, your loan is also subject to changes in the future (and chances are high that the interest rate will only increase!).
- Another thing is that if you plan to switch your mortgage company, you will need to pay a higher fee to implement new loan as well as pay off the old loan.
Jul 3, 2008
Glossary: Mortgage Terms
Glossary: Mortgage Terms
by Jon James
Additional Security Fee
An Additional Security Fee (Mortgage Indemnity Guarantee policy) is the fee taken to get an insurance policy that will cover your lender so that if you default on payments, he will not suffer any loss. You have to pay the Additional Security Fee and the premium along with your mortgage advance. Although you are paying the premium, remember that this policy is for the protection of your lender and not for you.
Administration Fee
The administration fee is the amount charged by your lender to start working on the documentation part of your mortgage application. It includes the home valuation fee as well. The administration fee will not be refunded even if your valuation is not done or if your application has been rejected.
Adverse Credit
Adverse credit occurs when you have a history of bad credit, bankruptcy, CCJ's, or loan arrears. Adverse credit can also be called as bad credit, poor credit, or it can be said that you have a low credit score.
Agricultural Restriction
An agricultural restriction is a rule which will restrict you from holding a property if your occupation is in any way related to agriculture.
Annual Percentage Rate
The Annual Percentage Rate is the rate at which you borrow money from lender. It includes all the initial fees and ongoing costs that you will pay throughout the mortgage term. As the name suggests, annual percentage rate, or APR, is the cost of a mortgage quoted in a yearly rate. The annual percentage rate is a good way to compare the offers from different lenders based on the annual cost of each loan.
Apportionment
Apportionment, or sharing out, is a facility that allows you to divide the responsibility for utilities, property taxes, etc. with the buyer or the seller of the property when you are either selling or buying the property.
Arrears
Arrears happen when you default on your mortgage payment or any other type of debt payment. If you have arrears on the record of your current mortgage, you will face problems when you want to look at remortgaging or getting a new mortgage.
Arrangement Fee
An arrangement fee is the amount you have to pay your lender to access particular mortgage deals. While searching for a fixed rate, cash back, or discounted rate mortgage, you will pay this fee at the time that you submit your application, it must be added to the loan upon completion of the term, or it will be deducted from the loan on completion.
Assignment
An assignment is the document transferring the lease of the property or rights of ownership from a seller to a buyer. It may be an endowment policy to the building society in connection with a mortgage.
ASU
ASU is Accident, Sickness, and Unemployment insurance which covers your mortgage payments in case of an accident, a sickness, or involuntary unemployment.
Auction
An auction is the public sale of a property to the person who quotes highest bid. The highest bidder has to sign a binding contract that ensures that he do all valuations, searches, etc. before the sale of the property.
Authority to Inspect the Register
An authority to inspect the register document is a document fro the legal or registered owner of a property allowing the solicitor of the purchaser to get information concerning the property.
Banker's Draft
A banker's draft is a way to make a payment. In appearance, it is the same as a cheque, but in effect it is a cash payment. The money is given to the bank, and they issue a cheque that is certified to be good for the given amount.
Base Rate Tracker
Base rate tracker is a type of mortgage in which the interest rate is variable, but it is set at a premium (above) the Bank of England Base Rate for a period or for the full term of the mortgage. The best part about this type of mortgage is that it has little or no redemption penalty. This means that by making overpayments, you will be able to save money on interest by paying off your mortgage earlier than the agreed upon date on the initial mortgage contract.
Booking Fee
A booking fee or arrangement fee is charged when applying for a fixed or a capped rate loan. Booking fees are normally non-refundable if charged upfront, but sometimes the booking fee is added to your final mortgage payment.
Bridging Loan
A bridging loan is useful when you want to purchase a property, but your ability to do so is contingent upon the sale of your old property. This is a very short term loan that is paid off as soon as your old property sells. Speak with a loan advisor before taking out a bridging loan to be sure it's the best option for you.
Broker's Fee
A broker's fee is paid to your debt advisor or other intermediary that assists you in finding the best mortgage or loan deal for your circumstances. BSAThe BSA, or the Building Societies Association, is a group that works in the interest of member societies.
Building Societies Commission
The Building Societies Commission is a regulatory organization for Building Societies. This commission reports to the Treasury Ministers.
Building Society
A Building Society is a mutual organization that gives you money to buy or remortgage residential properties. This money comes from individual investors who are paid interest on their funds. A portion of building society funds is also raised through commercial money markets.
Buy-to-Let
When you purchase a property for the sole purpose of renting it out, you can apply for a buy-to-let mortgage. The payments for this type of mortgage are calculated based on your projected rental income instead of your personal income.
Capital and Interest
Your monthly mortgage payments consist of two parts: the interest and the capital. The interest payment is a payment on the interest balance of your loan. The capital payment is a payment on the amount that you borrowed.
Capital Raising
Capital raising generally means remortgaging for a higher amount than you need to pay off your existing mortgage in order to use the excess money for other personal financial uses.
Capped Rate
A capped interest rate is an interest rate that will not exceed the standard variable interest rate for a set period of time (from 1-5 years) that is decided by you and your lender. If the standard variable rate falls below your capped rate, your interest rate will decrease accordingly.
Cash Back
Cash back is the amount you receive when you take out a mortgage, the amount may be fixed or a percentage of your mortgage amount.
CCJ
CCJ stands for County Court Judgment. This is a decision reached by a county court against you when you have defaulted on your debt payments. If you clear the debt in question in a set amount of time, a satisfactory note will be put on your credit report to signify that the debt is taken care of.
Centralized Lender
A centralized lender is a mortgage lender that does not rely on a branch network for distribution. "Centralized lending" is now provided by several building societies. These societies operate separately from their branch networks, and they rely exclusively on mortgages from intermediary sources.
Charge
A charge is any interest on a mortgage to which a freehold or leasehold property can be held.
Charge Certificate
A charge certificate is a certificate issued by HM Land Registry to you with your name as the registered title for a given property. This certificate contains details of restrictions, mortgages, and other interests. It has three different parts: a charges register, a property register, and a proprietorship register. If there is no mortgage on the property, it is called a Land Certificate, and it is issued to the registered proprietor.
Chattels
Chattels are moveable items in your house such as furniture or your personal possessions.Chief RentChief rent is paid by the owner of a freehold property. This is the same as the ground rent that is paid by a leaseholder.
CML
Council of Mortgage Lenders
Completion
Completion is a term that explains that you have become the owner of your house after finishing the formalities of the sale and the purchase of the property.
Conditional Insurance
When you take out a fixed or discounted rate mortgage, your lender may try to persuade you to take out an insurance policy that will cover any missed payments due to an illness, an accident, or unemployment.
Contract
A contract is a legally binding sale agreement. There are two identical copies signed by both the buyer and the seller, and each party keeps a copy for their records. Once both parties have signed the contract, they are committed to the terms of the agreement.
Conveyance
A conveyance is the deed by which a freehold, unregistered title is transferred. The deed is called an assignment if your property is unregistered or leasehold. If the property is registered, the deed is called a transfer.
Conveyancing
Conveyancing is the legal process by which the buying and the selling of a property take place.
Covenant
A covenant is an assurance given in a deed.Credit ScoringCredit scoring is the procedure by which a lender evaluates your paying capacity before offering a loan or mortgage.
Credit Search
A credit search is done by a lender and a credit bureau to search your records for CCJs and other indicators of bad credit.
Debt Consolidation
Debt consolidation is the process by which you take out a loan or mortgage in order to pay off a number of high interest debts. By doing this, you will only need to make one payment each month, and you will save significantly on interest charges.
Deed
A deed is a legal document that denotes the owner of a given property. You can transfer a title to both freehold and leasehold with a deed.DepositA deposit is the amount of money you put down toward buying a property.
Disbursements
Disbursements are any amount you pay to solicitors against land registry fees, searches, faxes etc.
Discounted Rate
Discounted rates are used to attract new borrowers to lenders by setting the interest rate below the standard variable rate for a guaranteed period of time. If you repay the entire discounted rate mortgage within the first few years, your lender may charge you early redemption penalties.
Early Redemption Penalty
An early redemption penalty is charged by your lender if you do a part or full payment of your mortgage amount before the completion of your mortgage term. These penalties will also be charged if you decide to remortgage and move your mortgage to a new lender. Early redemption penalties mainly apply to fixed rate, discounted rate, and cash back mortgages.
Easement
Easement is the right held by one property owner to make use of the land of another for a limited purpose, like a right of passage.
Endowment Mortgage
An endowment mortgage is an interest only mortgage supported by an endowment policy. During the term of the mortgage you will pay only interest to the lender, and your premiums are alternately paid into an endowment policy which will mature over the term of your mortgage. The endowment policy is designed to pay off your mortgage as well as act as life insurance. However, you cannot depend on this amount to be sufficient to pay all of your debt.
Endowment
There are different types of endowments, but here an endowment is a life insurance policy that will pay off your interest only mortgage.EquityEquity is the amount of value in your home. It is the value of your home less the amount left to be repaid on your mortgage.
Equity Release
Equity release is a means of releasing money from the value of your home either in a lump sum or in monthly installments. This money may be used for home improvements, debt consolidation, or other large expenses.
Exchange of Contracts
Exchange of contracts occurs when the buyer and the seller of a property sign and swap the contracts which detail the property, the price, the date, and the terms of the arrangement. When the contracts are signed, they become legally binding, and legal action can be taken against anyone who breaks the contract.
Existing Liabilities
Existing liabilities are all financial commitments outside of your mortgage. Existing liabilities may include bank loans, credit card debt, maintenance payments, etc.
First Time Buyers (FTB or FTP)
A first time buyer is one who has never owned property before.
Fixed Rate
A fixed rate is when you pay a fixed amount of interest on a loan for a fixed period of time. Lenders provide fixed rate loans for short periods of time (three-six months) all the way up to 25 years. Early redemption penalties apply if you pay off the mortgage before the end of the fixed rate term. Flexible SchemeA flexible scheme is a new way of calculating mortgage interest charges. Lenders calculate interest on a daily basis instead of on an annual basis. The new interest rates will only affect the remaining balance of the mortgage. By making regular overpayments, you can repay the loan faster thereby saving a lot on interest charges.
Fixture
A fixture is an item attached to your property, and therefore it is legally part of the property.
Freehold
Freehold means that you have ownership of a property for an indefinite period of time. This is in contrast to leasehold which means that the property is only under your control for a limited period of time.
Further Advance
A further advance is an add-on loan to your existing mortgage from your existing lender. The money from a further advance may be used for home improvements, to purchase a freehold property, or for personal purposes such as debt consolidation.
Guarantor
A guarantor is a person who guarantees the lender that the borrower is eligible for a loan or mortgage. If the borrower fails to make payments, the guarantor will make them.
Gazumping
Gazumping occurs when a seller agrees to sell a property to one person, and they proceed to decline that offer in favor of a higher one.
Ground Rent
Ground rent is the amount which a leaseholder needs to pay to the freeholder each year.
Home Buyer's Report
A home buyer's report is made by a lender after a mortgage valuation has been done and before the full survey takes place in order to give the borrower a complete understanding of the property they are thinking of buying.
Income Multipliers
An income multiplier is a type of calculation that a lender will use to calculate the amount a borrower can receive. The most common income multiplier is three times a single income or two and a half times joint income. The lender will choose the one that yields the higher figure. Lenders are more flexible if your LTV ratio is low.
Income Protection Insurance
With income protection insurance, your monthly payments will be covered in the case of illness, accident, or unemployment.
Intermediary
An intermediary is a mediator who finds the best mortgage for you, and they also arrange the mortgage for you on your behalf.
Land Registry Fee
A land registry fee is paid when you want to register your ownership of a property or when you want to change the registered title of a property.LeaseholdUnlike freehold in which a property is owned, leasehold is when a property is owned, but the land that it's built on is not owned by the leaseholder. Their control of the property is only for a set number of years.
Licensed Conveyancer
A licensed conveyancer is like a solicitor in that they specialize in the legalities of buying and selling property.
Local Authority Search
A local authority search is made by the solicitor of the people that plan to buy your property. They check to make sure there are no planned developments on the property such as roads or buildings. They will check for any planning permissions or enforcement notices posted on your property.
LTV
LTV, or loan to value, is the percentage derived from dividing the value of your property by the amount of your mortgage. A low LTV is much less risky for lenders than a 100% LTV.
Loan Consolidation
Loan consolidation happens when a loan is taken out to repay another loan with a higher interest rate or to repay a number of high interest debts. Loan consolidation is often achieved through remortgaging.
MIG
A MIG, or mortgage indemnity guarantee, is insurance one takes out to cover their lender in the case that their property is repossessed, and the lender is unable to get their money back. A MIG is paid for upon completion of a mortgage.
MIRAS
MIRAS, or mortgage interest relief at source, was a tax relief given to those with mortgages, but this relief was abolished by the government in April of 2000.MortgageA mortgage is a loan that allows someone to buy a property. The property itself is the security for the loan.
Mortgagee
The mortgagee is the company or organization that finances your mortgage.
Mortgagor
The mortgagor is the person taking out the mortgage to buy a property.
MPPI
MPPI, or mortgage payment protection insurance, is insurance one takes out in the case of an accident, an illness, or involuntary unemployment that would render them incapable of making their monthly mortgage payment.
MRP
MRP, or mortgage repayment protection, is insurance taken out through your lender during the term of your loan.
Negative Equity
Negative equity occurs when the money you owe to your mortgage lender is greater than the value of your property. People find themselves in negative equity situations when they take out 100% LTV mortgages.
Overpayment
Overpayment happens when you pay more than the regular monthly payment on your mortgage so that the mortgage is repaid before the end of the mortgage term. With overpayments, you can save money on interest, but you may also be charged an early redemption penalty.Payment HolidayA payment holiday is a period during which you make no mortgagee payments. This is normally available with flexible mortgages only.
PEP
A PEP, or personal equity plan, allows you to own shares or unit trusts without paying any taxes.
Personal Pension
A personal pension provides for your financial needs after retirement. You make structured payments into your pension savings during your working years. Often, some of this money may be taken out to pay off your mortgage liabilities.
Portability
Portability is a term used to describe a mortgage that can be transferred between properties when you move from one house to another.
Redemption
Redemption is when you pay off your mortgage, when you remortgage, or when you move to a new house.
Remittance Fee
A remittance fee is charged by a lender for sending the amount of a mortgage to your solicitor.RemortgageA remortgage is a loan taken out from a new lender or a loan renegotiated with your existing lender to pay off your existing mortgage. This is done to decrease the interest rate you're paying or to raise extra capital.
Repayment Mortgages
A repayment mortgage is when part of your monthly payment goes toward the interest and another part of the payment goes toward the principal. This is also known as a capital and interest mortgage. If payments are made regularly, the entire sum of the loan will be repaid by the end of the term.
Retention
Retention is the amount that your lender keeps pending until certain conditions of your mortgage are met.
Repossession
Repossession is a legal process by which your mortgaged property comes under the control of your lender due to incomplete repayment. Your property may then be sold at public auction.
Right to Buy
Right to buy means that you are legally able to purchase the property at a discounted rate if you've been a tenant for a long enough period of time.
Sealing Fee
A sealing fee is an amount charged by your lender when you repay your mortgage.
Self Certification of Income
Self certification of income means that you confirm how much you earn, and the lender does not need proof of your income from a third party. Self certification is useful for self employed people or contract workers.
Shared Ownership
Shared ownership is a scheme devised by housing associations that requires you to pay mortgage payments on the part of a property that you own while you also make monthly rent payments on the portion of the property owned by the building association.
Solicitors
Solicitors are the people who give legal advice and carry out all the legal work for mortgage and remortgage transactions.Stamp Duty Stamp duty is a tax paid to the government on the purchase of a property.
SVR
The SVR, or standard variable rate, is the lender's own base rate. It is subject to change at any time depending on the lender. The SVR will fluctuate based on the Bank of England Base Rate.
Structural Survey
A structural survey is the thorough inspection of a property carried out by a professional surveyor.
Tenure
Tenure means the type of rights a person has over a property or the land it stands on. Tenure could be freehold or leasehold, for example.
Term
The term of a mortgage is the number of years over which you plan to pay your mortgage off.
Tie-in Period
A tie-in period is an amount of time for which you are bound to a lender. Tie-in periods often exist with special mortgage deals like fixed, capped, or discounted rates. If you move your mortgage to a different lender during this period, you are subject to an early redemption fee.
Title Deeds
A title deed is a legal document that validates the ownership of your property. A title deed proves your true and legal right to your property.
Transfer Deed
A transfer deed is a legal deed used for transferring the ownership of your property to a buyer.
Unencumbered
The term unencumbered means that you own your property outright with no mortgages or loans against it.
Valuation
A property valuation is a survey conducted on a property by a qualified surveyor in order to assess the value of the property. This valuation is done on behalf of your lender so that they are able to confirm the value of your property.
Variable Rate
A variable rate means that your interest rate may change from month to month thereby causing your payments to fluctuate monthly.
Vendor
A vendor is the person from whom you purchase a property.
by Jon James
Additional Security Fee
An Additional Security Fee (Mortgage Indemnity Guarantee policy) is the fee taken to get an insurance policy that will cover your lender so that if you default on payments, he will not suffer any loss. You have to pay the Additional Security Fee and the premium along with your mortgage advance. Although you are paying the premium, remember that this policy is for the protection of your lender and not for you.
Administration Fee
The administration fee is the amount charged by your lender to start working on the documentation part of your mortgage application. It includes the home valuation fee as well. The administration fee will not be refunded even if your valuation is not done or if your application has been rejected.
Adverse Credit
Adverse credit occurs when you have a history of bad credit, bankruptcy, CCJ's, or loan arrears. Adverse credit can also be called as bad credit, poor credit, or it can be said that you have a low credit score.
Agricultural Restriction
An agricultural restriction is a rule which will restrict you from holding a property if your occupation is in any way related to agriculture.
Annual Percentage Rate
The Annual Percentage Rate is the rate at which you borrow money from lender. It includes all the initial fees and ongoing costs that you will pay throughout the mortgage term. As the name suggests, annual percentage rate, or APR, is the cost of a mortgage quoted in a yearly rate. The annual percentage rate is a good way to compare the offers from different lenders based on the annual cost of each loan.
Apportionment
Apportionment, or sharing out, is a facility that allows you to divide the responsibility for utilities, property taxes, etc. with the buyer or the seller of the property when you are either selling or buying the property.
Arrears
Arrears happen when you default on your mortgage payment or any other type of debt payment. If you have arrears on the record of your current mortgage, you will face problems when you want to look at remortgaging or getting a new mortgage.
Arrangement Fee
An arrangement fee is the amount you have to pay your lender to access particular mortgage deals. While searching for a fixed rate, cash back, or discounted rate mortgage, you will pay this fee at the time that you submit your application, it must be added to the loan upon completion of the term, or it will be deducted from the loan on completion.
Assignment
An assignment is the document transferring the lease of the property or rights of ownership from a seller to a buyer. It may be an endowment policy to the building society in connection with a mortgage.
ASU
ASU is Accident, Sickness, and Unemployment insurance which covers your mortgage payments in case of an accident, a sickness, or involuntary unemployment.
Auction
An auction is the public sale of a property to the person who quotes highest bid. The highest bidder has to sign a binding contract that ensures that he do all valuations, searches, etc. before the sale of the property.
Authority to Inspect the Register
An authority to inspect the register document is a document fro the legal or registered owner of a property allowing the solicitor of the purchaser to get information concerning the property.
Banker's Draft
A banker's draft is a way to make a payment. In appearance, it is the same as a cheque, but in effect it is a cash payment. The money is given to the bank, and they issue a cheque that is certified to be good for the given amount.
Base Rate Tracker
Base rate tracker is a type of mortgage in which the interest rate is variable, but it is set at a premium (above) the Bank of England Base Rate for a period or for the full term of the mortgage. The best part about this type of mortgage is that it has little or no redemption penalty. This means that by making overpayments, you will be able to save money on interest by paying off your mortgage earlier than the agreed upon date on the initial mortgage contract.
Booking Fee
A booking fee or arrangement fee is charged when applying for a fixed or a capped rate loan. Booking fees are normally non-refundable if charged upfront, but sometimes the booking fee is added to your final mortgage payment.
Bridging Loan
A bridging loan is useful when you want to purchase a property, but your ability to do so is contingent upon the sale of your old property. This is a very short term loan that is paid off as soon as your old property sells. Speak with a loan advisor before taking out a bridging loan to be sure it's the best option for you.
Broker's Fee
A broker's fee is paid to your debt advisor or other intermediary that assists you in finding the best mortgage or loan deal for your circumstances. BSAThe BSA, or the Building Societies Association, is a group that works in the interest of member societies.
Building Societies Commission
The Building Societies Commission is a regulatory organization for Building Societies. This commission reports to the Treasury Ministers.
Building Society
A Building Society is a mutual organization that gives you money to buy or remortgage residential properties. This money comes from individual investors who are paid interest on their funds. A portion of building society funds is also raised through commercial money markets.
Buy-to-Let
When you purchase a property for the sole purpose of renting it out, you can apply for a buy-to-let mortgage. The payments for this type of mortgage are calculated based on your projected rental income instead of your personal income.
Capital and Interest
Your monthly mortgage payments consist of two parts: the interest and the capital. The interest payment is a payment on the interest balance of your loan. The capital payment is a payment on the amount that you borrowed.
Capital Raising
Capital raising generally means remortgaging for a higher amount than you need to pay off your existing mortgage in order to use the excess money for other personal financial uses.
Capped Rate
A capped interest rate is an interest rate that will not exceed the standard variable interest rate for a set period of time (from 1-5 years) that is decided by you and your lender. If the standard variable rate falls below your capped rate, your interest rate will decrease accordingly.
Cash Back
Cash back is the amount you receive when you take out a mortgage, the amount may be fixed or a percentage of your mortgage amount.
CCJ
CCJ stands for County Court Judgment. This is a decision reached by a county court against you when you have defaulted on your debt payments. If you clear the debt in question in a set amount of time, a satisfactory note will be put on your credit report to signify that the debt is taken care of.
Centralized Lender
A centralized lender is a mortgage lender that does not rely on a branch network for distribution. "Centralized lending" is now provided by several building societies. These societies operate separately from their branch networks, and they rely exclusively on mortgages from intermediary sources.
Charge
A charge is any interest on a mortgage to which a freehold or leasehold property can be held.
Charge Certificate
A charge certificate is a certificate issued by HM Land Registry to you with your name as the registered title for a given property. This certificate contains details of restrictions, mortgages, and other interests. It has three different parts: a charges register, a property register, and a proprietorship register. If there is no mortgage on the property, it is called a Land Certificate, and it is issued to the registered proprietor.
Chattels
Chattels are moveable items in your house such as furniture or your personal possessions.Chief RentChief rent is paid by the owner of a freehold property. This is the same as the ground rent that is paid by a leaseholder.
CML
Council of Mortgage Lenders
Completion
Completion is a term that explains that you have become the owner of your house after finishing the formalities of the sale and the purchase of the property.
Conditional Insurance
When you take out a fixed or discounted rate mortgage, your lender may try to persuade you to take out an insurance policy that will cover any missed payments due to an illness, an accident, or unemployment.
Contract
A contract is a legally binding sale agreement. There are two identical copies signed by both the buyer and the seller, and each party keeps a copy for their records. Once both parties have signed the contract, they are committed to the terms of the agreement.
Conveyance
A conveyance is the deed by which a freehold, unregistered title is transferred. The deed is called an assignment if your property is unregistered or leasehold. If the property is registered, the deed is called a transfer.
Conveyancing
Conveyancing is the legal process by which the buying and the selling of a property take place.
Covenant
A covenant is an assurance given in a deed.Credit ScoringCredit scoring is the procedure by which a lender evaluates your paying capacity before offering a loan or mortgage.
Credit Search
A credit search is done by a lender and a credit bureau to search your records for CCJs and other indicators of bad credit.
Debt Consolidation
Debt consolidation is the process by which you take out a loan or mortgage in order to pay off a number of high interest debts. By doing this, you will only need to make one payment each month, and you will save significantly on interest charges.
Deed
A deed is a legal document that denotes the owner of a given property. You can transfer a title to both freehold and leasehold with a deed.DepositA deposit is the amount of money you put down toward buying a property.
Disbursements
Disbursements are any amount you pay to solicitors against land registry fees, searches, faxes etc.
Discounted Rate
Discounted rates are used to attract new borrowers to lenders by setting the interest rate below the standard variable rate for a guaranteed period of time. If you repay the entire discounted rate mortgage within the first few years, your lender may charge you early redemption penalties.
Early Redemption Penalty
An early redemption penalty is charged by your lender if you do a part or full payment of your mortgage amount before the completion of your mortgage term. These penalties will also be charged if you decide to remortgage and move your mortgage to a new lender. Early redemption penalties mainly apply to fixed rate, discounted rate, and cash back mortgages.
Easement
Easement is the right held by one property owner to make use of the land of another for a limited purpose, like a right of passage.
Endowment Mortgage
An endowment mortgage is an interest only mortgage supported by an endowment policy. During the term of the mortgage you will pay only interest to the lender, and your premiums are alternately paid into an endowment policy which will mature over the term of your mortgage. The endowment policy is designed to pay off your mortgage as well as act as life insurance. However, you cannot depend on this amount to be sufficient to pay all of your debt.
Endowment
There are different types of endowments, but here an endowment is a life insurance policy that will pay off your interest only mortgage.EquityEquity is the amount of value in your home. It is the value of your home less the amount left to be repaid on your mortgage.
Equity Release
Equity release is a means of releasing money from the value of your home either in a lump sum or in monthly installments. This money may be used for home improvements, debt consolidation, or other large expenses.
Exchange of Contracts
Exchange of contracts occurs when the buyer and the seller of a property sign and swap the contracts which detail the property, the price, the date, and the terms of the arrangement. When the contracts are signed, they become legally binding, and legal action can be taken against anyone who breaks the contract.
Existing Liabilities
Existing liabilities are all financial commitments outside of your mortgage. Existing liabilities may include bank loans, credit card debt, maintenance payments, etc.
First Time Buyers (FTB or FTP)
A first time buyer is one who has never owned property before.
Fixed Rate
A fixed rate is when you pay a fixed amount of interest on a loan for a fixed period of time. Lenders provide fixed rate loans for short periods of time (three-six months) all the way up to 25 years. Early redemption penalties apply if you pay off the mortgage before the end of the fixed rate term. Flexible SchemeA flexible scheme is a new way of calculating mortgage interest charges. Lenders calculate interest on a daily basis instead of on an annual basis. The new interest rates will only affect the remaining balance of the mortgage. By making regular overpayments, you can repay the loan faster thereby saving a lot on interest charges.
Fixture
A fixture is an item attached to your property, and therefore it is legally part of the property.
Freehold
Freehold means that you have ownership of a property for an indefinite period of time. This is in contrast to leasehold which means that the property is only under your control for a limited period of time.
Further Advance
A further advance is an add-on loan to your existing mortgage from your existing lender. The money from a further advance may be used for home improvements, to purchase a freehold property, or for personal purposes such as debt consolidation.
Guarantor
A guarantor is a person who guarantees the lender that the borrower is eligible for a loan or mortgage. If the borrower fails to make payments, the guarantor will make them.
Gazumping
Gazumping occurs when a seller agrees to sell a property to one person, and they proceed to decline that offer in favor of a higher one.
Ground Rent
Ground rent is the amount which a leaseholder needs to pay to the freeholder each year.
Home Buyer's Report
A home buyer's report is made by a lender after a mortgage valuation has been done and before the full survey takes place in order to give the borrower a complete understanding of the property they are thinking of buying.
Income Multipliers
An income multiplier is a type of calculation that a lender will use to calculate the amount a borrower can receive. The most common income multiplier is three times a single income or two and a half times joint income. The lender will choose the one that yields the higher figure. Lenders are more flexible if your LTV ratio is low.
Income Protection Insurance
With income protection insurance, your monthly payments will be covered in the case of illness, accident, or unemployment.
Intermediary
An intermediary is a mediator who finds the best mortgage for you, and they also arrange the mortgage for you on your behalf.
Land Registry Fee
A land registry fee is paid when you want to register your ownership of a property or when you want to change the registered title of a property.LeaseholdUnlike freehold in which a property is owned, leasehold is when a property is owned, but the land that it's built on is not owned by the leaseholder. Their control of the property is only for a set number of years.
Licensed Conveyancer
A licensed conveyancer is like a solicitor in that they specialize in the legalities of buying and selling property.
Local Authority Search
A local authority search is made by the solicitor of the people that plan to buy your property. They check to make sure there are no planned developments on the property such as roads or buildings. They will check for any planning permissions or enforcement notices posted on your property.
LTV
LTV, or loan to value, is the percentage derived from dividing the value of your property by the amount of your mortgage. A low LTV is much less risky for lenders than a 100% LTV.
Loan Consolidation
Loan consolidation happens when a loan is taken out to repay another loan with a higher interest rate or to repay a number of high interest debts. Loan consolidation is often achieved through remortgaging.
MIG
A MIG, or mortgage indemnity guarantee, is insurance one takes out to cover their lender in the case that their property is repossessed, and the lender is unable to get their money back. A MIG is paid for upon completion of a mortgage.
MIRAS
MIRAS, or mortgage interest relief at source, was a tax relief given to those with mortgages, but this relief was abolished by the government in April of 2000.MortgageA mortgage is a loan that allows someone to buy a property. The property itself is the security for the loan.
Mortgagee
The mortgagee is the company or organization that finances your mortgage.
Mortgagor
The mortgagor is the person taking out the mortgage to buy a property.
MPPI
MPPI, or mortgage payment protection insurance, is insurance one takes out in the case of an accident, an illness, or involuntary unemployment that would render them incapable of making their monthly mortgage payment.
MRP
MRP, or mortgage repayment protection, is insurance taken out through your lender during the term of your loan.
Negative Equity
Negative equity occurs when the money you owe to your mortgage lender is greater than the value of your property. People find themselves in negative equity situations when they take out 100% LTV mortgages.
Overpayment
Overpayment happens when you pay more than the regular monthly payment on your mortgage so that the mortgage is repaid before the end of the mortgage term. With overpayments, you can save money on interest, but you may also be charged an early redemption penalty.Payment HolidayA payment holiday is a period during which you make no mortgagee payments. This is normally available with flexible mortgages only.
PEP
A PEP, or personal equity plan, allows you to own shares or unit trusts without paying any taxes.
Personal Pension
A personal pension provides for your financial needs after retirement. You make structured payments into your pension savings during your working years. Often, some of this money may be taken out to pay off your mortgage liabilities.
Portability
Portability is a term used to describe a mortgage that can be transferred between properties when you move from one house to another.
Redemption
Redemption is when you pay off your mortgage, when you remortgage, or when you move to a new house.
Remittance Fee
A remittance fee is charged by a lender for sending the amount of a mortgage to your solicitor.RemortgageA remortgage is a loan taken out from a new lender or a loan renegotiated with your existing lender to pay off your existing mortgage. This is done to decrease the interest rate you're paying or to raise extra capital.
Repayment Mortgages
A repayment mortgage is when part of your monthly payment goes toward the interest and another part of the payment goes toward the principal. This is also known as a capital and interest mortgage. If payments are made regularly, the entire sum of the loan will be repaid by the end of the term.
Retention
Retention is the amount that your lender keeps pending until certain conditions of your mortgage are met.
Repossession
Repossession is a legal process by which your mortgaged property comes under the control of your lender due to incomplete repayment. Your property may then be sold at public auction.
Right to Buy
Right to buy means that you are legally able to purchase the property at a discounted rate if you've been a tenant for a long enough period of time.
Sealing Fee
A sealing fee is an amount charged by your lender when you repay your mortgage.
Self Certification of Income
Self certification of income means that you confirm how much you earn, and the lender does not need proof of your income from a third party. Self certification is useful for self employed people or contract workers.
Shared Ownership
Shared ownership is a scheme devised by housing associations that requires you to pay mortgage payments on the part of a property that you own while you also make monthly rent payments on the portion of the property owned by the building association.
Solicitors
Solicitors are the people who give legal advice and carry out all the legal work for mortgage and remortgage transactions.Stamp Duty Stamp duty is a tax paid to the government on the purchase of a property.
SVR
The SVR, or standard variable rate, is the lender's own base rate. It is subject to change at any time depending on the lender. The SVR will fluctuate based on the Bank of England Base Rate.
Structural Survey
A structural survey is the thorough inspection of a property carried out by a professional surveyor.
Tenure
Tenure means the type of rights a person has over a property or the land it stands on. Tenure could be freehold or leasehold, for example.
Term
The term of a mortgage is the number of years over which you plan to pay your mortgage off.
Tie-in Period
A tie-in period is an amount of time for which you are bound to a lender. Tie-in periods often exist with special mortgage deals like fixed, capped, or discounted rates. If you move your mortgage to a different lender during this period, you are subject to an early redemption fee.
Title Deeds
A title deed is a legal document that validates the ownership of your property. A title deed proves your true and legal right to your property.
Transfer Deed
A transfer deed is a legal deed used for transferring the ownership of your property to a buyer.
Unencumbered
The term unencumbered means that you own your property outright with no mortgages or loans against it.
Valuation
A property valuation is a survey conducted on a property by a qualified surveyor in order to assess the value of the property. This valuation is done on behalf of your lender so that they are able to confirm the value of your property.
Variable Rate
A variable rate means that your interest rate may change from month to month thereby causing your payments to fluctuate monthly.
Vendor
A vendor is the person from whom you purchase a property.
Jun 24, 2008
High Ratio Mortgages
High Ratio Mortgages
by Mary Anne Murphy
Do you know what the definition of a high ratio mortgage is?
High ratio mortgages are when you get a loan that covers more than 80% of the value of the property you have mortgaged, in other words the loan value to the home value ratio is higher. When you buy your home, the ideal situation for loans, and for banks, is for you to put down a 25% down payment. However, most people are not able to do this because the cost of homes has gone up considerably from the past.
So, if you are not able to put down 25 percent you can still buy your home with the high ratio mortgages. With this type of high mortgage loan you will be able to put a down payment of 5 percent on the purchase price or in some cases even zero percent down. This will allow you to buy the home you want without you having to break the bank and put yourself into huge debt to come up with the 25 percent.
So how do the high ratio mortgages work? When you get a conventional mortgage the lender will insure the loan themselves because this means less risk for them. Lenders will want to make sure that if you default on your mortgage and the bank needs to force the sale of your home, that there will be enough equity in the property for the bank to get their money back. With the high rate mortgage loans you will have to get default insurance through a third party. The insurance is the key to the high ratio mortgage loans. If you don't have it then you won't be able to find any major lenders that will let you put a down payment of less than 25 percent. The reason for this is because the insurance will protect the lender's interests. Mortgage insurance companies will cover any deficit for the lender if there is not enough equity in your home if you default on the mortgage.
The purchase of mortgage insurance will add to the cost of buying a home but instead of paying for this upfront, most lenders will work the cost of your mortgage insurance into the mortgage payments. It is a good idea to speak to your mortgage broker for all of the details.
Now that you know how it works you need to know who can qualify for a high mortgage loan. The answer is that anyone that is qualified to buy a home can qualify for the high ratio mortgages. Obviously, there will be other factors that are included to determine if you qualify but this is something you will have to figure out with a mortgage lender. Some of the things that will be taken into consideration are how much you make, home much debt you have and so on.
So, if you want to buy a home and you need to do the high ratio mortgages than you will want to talk to a lender to find out what you need to do. Buying a home with high mortgage loans is definitely the way to go if you can't put down the 25 percent down payment. So get started today, learn more information about these mortgages and talk to a lender.
by Mary Anne Murphy
Do you know what the definition of a high ratio mortgage is?
High ratio mortgages are when you get a loan that covers more than 80% of the value of the property you have mortgaged, in other words the loan value to the home value ratio is higher. When you buy your home, the ideal situation for loans, and for banks, is for you to put down a 25% down payment. However, most people are not able to do this because the cost of homes has gone up considerably from the past.
So, if you are not able to put down 25 percent you can still buy your home with the high ratio mortgages. With this type of high mortgage loan you will be able to put a down payment of 5 percent on the purchase price or in some cases even zero percent down. This will allow you to buy the home you want without you having to break the bank and put yourself into huge debt to come up with the 25 percent.
So how do the high ratio mortgages work? When you get a conventional mortgage the lender will insure the loan themselves because this means less risk for them. Lenders will want to make sure that if you default on your mortgage and the bank needs to force the sale of your home, that there will be enough equity in the property for the bank to get their money back. With the high rate mortgage loans you will have to get default insurance through a third party. The insurance is the key to the high ratio mortgage loans. If you don't have it then you won't be able to find any major lenders that will let you put a down payment of less than 25 percent. The reason for this is because the insurance will protect the lender's interests. Mortgage insurance companies will cover any deficit for the lender if there is not enough equity in your home if you default on the mortgage.
The purchase of mortgage insurance will add to the cost of buying a home but instead of paying for this upfront, most lenders will work the cost of your mortgage insurance into the mortgage payments. It is a good idea to speak to your mortgage broker for all of the details.
Now that you know how it works you need to know who can qualify for a high mortgage loan. The answer is that anyone that is qualified to buy a home can qualify for the high ratio mortgages. Obviously, there will be other factors that are included to determine if you qualify but this is something you will have to figure out with a mortgage lender. Some of the things that will be taken into consideration are how much you make, home much debt you have and so on.
So, if you want to buy a home and you need to do the high ratio mortgages than you will want to talk to a lender to find out what you need to do. Buying a home with high mortgage loans is definitely the way to go if you can't put down the 25 percent down payment. So get started today, learn more information about these mortgages and talk to a lender.
Jun 19, 2008
Endowment: Where Should You Be Investing Your Money?
Endowment: Where Should You Be Investing Your Money?
by Charles Newman
Investing money is supposedly a safe discipline, to put a few pennies away for times of need, possibly to make retirement a little more comfortable. However many have recently found, that our financial investments are far from secure and a constant worry. With the UK financial situation shaken up, where is the best place to keep your hard earned savings safe and sound?
Share prices from around the world seem to have been massively affected by recessions faced in the major global economies. Unfortunately savvy investors who invested in the UK and overseas have been hit both times, with the US and Japanese markets also performing badly. Successful traders buy when shares are low and sell when they are high. Some would argue now is the time to buy, however this is a risky approach since there are no guarantees and nothing to stop share prices crashing further.
Property investment a few years ago looked as safe as houses, yet this year house prices have consistently fallen, proving that even the safest, well established investment methods can still be rocked to their foundations. Mortgages have followed suit with the financial recession, meaning consumers are finding it increasingly difficult to get finance to snap up the supposedly cheap houses on the market presently. Again could be a seen as a great time to invest in property if you do have sufficient funds.
Pension schemes have not had the best track record and there seems to be a trend showing public opinion swaying away from investing years of savings in pension schemes and looking elsewhere. A recent example was on 12 September 2007, Northern Rock asked the Bank of England, as lender of last resort in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market borrowings. Overnight customers panicked and stores had queues of customers the following day desperately trying to withdraw their savings. In one incident, police were called to the branch in Cheltenham, Gloucestershire when two joint account holders barricaded the bank manager in her office after she refused to let them withdraw £1 million from their account.
So where should you invest your savings to maximise return and minimise risk? Well the simply answer is no one knows. I believe the best tip is based on an old saying, dont keep all your eggs in one basket. Spreading out your savings could be the best way to safeguard your savings. It is possible to invest 7200 GBP each tax year is ISAs, 30000 GBP in guaranteed premium bonds with national savings and investments. If you still have more money to invest why not think of alternative investment opportunities, for example: endowment policies.
by Charles Newman
Investing money is supposedly a safe discipline, to put a few pennies away for times of need, possibly to make retirement a little more comfortable. However many have recently found, that our financial investments are far from secure and a constant worry. With the UK financial situation shaken up, where is the best place to keep your hard earned savings safe and sound?
Share prices from around the world seem to have been massively affected by recessions faced in the major global economies. Unfortunately savvy investors who invested in the UK and overseas have been hit both times, with the US and Japanese markets also performing badly. Successful traders buy when shares are low and sell when they are high. Some would argue now is the time to buy, however this is a risky approach since there are no guarantees and nothing to stop share prices crashing further.
Property investment a few years ago looked as safe as houses, yet this year house prices have consistently fallen, proving that even the safest, well established investment methods can still be rocked to their foundations. Mortgages have followed suit with the financial recession, meaning consumers are finding it increasingly difficult to get finance to snap up the supposedly cheap houses on the market presently. Again could be a seen as a great time to invest in property if you do have sufficient funds.
Pension schemes have not had the best track record and there seems to be a trend showing public opinion swaying away from investing years of savings in pension schemes and looking elsewhere. A recent example was on 12 September 2007, Northern Rock asked the Bank of England, as lender of last resort in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market borrowings. Overnight customers panicked and stores had queues of customers the following day desperately trying to withdraw their savings. In one incident, police were called to the branch in Cheltenham, Gloucestershire when two joint account holders barricaded the bank manager in her office after she refused to let them withdraw £1 million from their account.
So where should you invest your savings to maximise return and minimise risk? Well the simply answer is no one knows. I believe the best tip is based on an old saying, dont keep all your eggs in one basket. Spreading out your savings could be the best way to safeguard your savings. It is possible to invest 7200 GBP each tax year is ISAs, 30000 GBP in guaranteed premium bonds with national savings and investments. If you still have more money to invest why not think of alternative investment opportunities, for example: endowment policies.
Jun 13, 2008
Mortgage: How mortgages work
Mortgage: How mortgages work
A mortgage is "the pledging of property to a creditor as security for the payment of a debt." In plain terms, it is the legal contract that says if you don't pay the loan back (along with all of the fees and interest that are included with it), then the lender can have your house.
A mortgage is "the pledging of property to a creditor as security for the payment of a debt." In plain terms, it is the legal contract that says if you don't pay the loan back (along with all of the fees and interest that are included with it), then the lender can have your house.
- You take out a loan based on how much you can afford and the value of the property, for a length of time agreed between you and the lender
- You are charged interest on the loan, usually based on the Bank of England base rate, which is reviewed monthly
- You pay the mortgage back in one of two ways, repayment or interest-only
- You can choose different deals for your interest rate, such as fixed or discounted
- If you've had financial problems in the past and are finding it difficult to get a mortgage, the Council of Mortgage Lenders (CML) has a leaflet that may help.
Jun 2, 2008
Endowment Mortgage: What can you complain about?
Endowment Mortgage: What can you complain about?
You may have grounds for complaint if your adviser did not:
You may also be able to complain if:
You may have grounds for complaint if your adviser did not:
- tell you how your money would be invested and explain the risks involved;
- explain that an endowment policy is a long–term commitment that often gives a poor return if you cash it in early;
- check you were comfortable with the risks of your money being linked to investment performance, including the stockmarket;
- check there was a reasonable expectation you would be able to keep up payments until the end of the term; or
- explain any fees and charges and how they would affect the return on your savings. If you bought your endowment policy between 29 April 1988 and 31 December 1994, you should have been given ‘product particulars’. These are various details about your policy, including charges and surrender values for the first five years. If you bought your policy on or after 1 January 1995, you should have been given a key features document. This gives details of fees and charges and how they affect your savings over the longer term.
You may also be able to complain if:
- your endowment policy finishes after you retire and the adviser did not check that you were likely to be able to carry on paying the premiums after you retired;
- you were advised to cancel one endowment policy and take out another;
- your endowment policy runs on after your mortgage loan is due to finish; or
- you were given a guarantee that the endowment policy would pay off the mortgage loan (though this is likely to be rare).
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