The different types of mortgage repayments available to property purchasers are: tracker, variable rate, fixed rate,etc,.There are however some additional options like interest-only deal type and repayment mortgage deals.www.theautoinsuranceworld.co.cc
What does it entail?
An interest-only mortgage deal, entails that the borrower pays off the interest on the money borrowed, excluding the capital, for the duration of the term. But in a repayment mortgage deal, the borrower will be paying off some of the capital each month, as well as the interest accrued on the total amount.
Most people who take on a mortgage always choose repayment mortgage deals. These are the simplest types of mortgage deals and the risks are minimal.
With a repayment mortgage, your monthly payments will be made up of both a capital repayment and an interest repayment.
Capital repayments:
The 'capital' which is the money you borrowed in the first place, drops as payment is made each month and this gives you the opportunity to make payments within what you can afford. If no capital repayments are made, the amount owed will remain the same throughout the length of the mortgage deal.
Interest payments:
The interest is the money which has accrued on the capital you have borrowed. Interest payments may vary according to base rate fluctuations and the amount you owe over time. The larger the total mortgage, the more interest will be payable on the amount each month, so with repayment mortgage deals the interest will reduce over time as the capital owed reduces.
In a fixed rate mortgage, the interest owed monthly will not vary with the base rate, but remains the same for a fixed period or time. But in a variable rate or tracker mortgage, the interest owed each month may change according to base rate variations.
Which option is more suitable?
Repayment mortgages are the most popular because they are considered to be less risky and simpler to understand. Therefore, they are suitable for most people looking for mortgage deals. It is reassuring to know that each month the total owed is going down, and there is the added knowledge that interest repayments will drop in accordance with this. This type of mortgage deal is perfect for first time buyers who want a straightforward way to pay off their mortgage with ease.
Interest-only mortgages are often taken by investors who buy-to-let as they can claim back tax on mortgage interest. In most cases, they rely on the potential increase in the property market to make capital repayments at a later date.
Making your choice
Whether you are choosing the interest-only or repayment mortgage deals, it is advisable to consider your current and possible future circumstances, as well as the effect base rate changes will have on your repayments, and then make the necessary calculations so as to make an informed decision.
Thursday, June 24, 2010
The Advantages and Dis-advantages of Interest-Only Mortgage Deals:
When taking on a new mortgage deal, certain things should be considered. First, you will need to decide whether you want to be paying off capital each month or only the interest on that capital.
An interest-only mortgage is one in which you only pay off the interest accrued on the total capital each month, while the capital owed remains the same throughout the period of the mortgage deal. http://www.theautoinsuranceworld.co.cc
Advantages of Interest-Only Deals:
According to the Financial Services Authority, in every ten households,four have interest-only mortgages. There are a number of advantages on interest-only mortgage deals, basically. that monthly repayments will be significantly lower than with a repayment mortgage. This means that you will keep more of your income each month to spend on family, or on home improvements, for instance, with a very low base rate, an interest-only mortgage deal can seem almost cheap to maintain.
An interest-only mortgage is also considered to be preferable in the eyes of buy-to-let investors. This is because they are able to claim back tax on the mortgage interest, and they expect that rises in the property market will enable them to make capital repayments later on.
With interest-only mortgage deals, you can choose a savings account or repayment vehicle which attracts the best interest rates and is tax-efficient. And If this is well managed alongside the mortgage and if the payments is maintained, this option could even save you money in the long run.
The dis-advantages of Interest-Only Deals:
Interest-only mortgages are considered risky, as they do not provide the borrower with a complete outline of how they will pay off the capital they owe, and this can cause problems when the mortgage term ends if there is outstanding debt and no alternative means of repayment.
Also, while a repayment mortgage may be more expensive in the short term, in the long run, you will be reducing the total capital owed which will, in turn, reduce the interest paid as well.But with an interest-only mortgage deal, however, the capital will still be payable in full at the end of the mortgage term
Recommendations
If you choose an interest-only mortgage deal, it is best to use a separate savings account or repayment vehicle in which you also make monthly payments into, to ensure you will be able to pay off the capital by the end of the mortgage term. Otherwise you will need to make capital available to pay off the remaining amount owed by the end of the mortgage term.
A repayment vehicle can be an ISA, which you make monthly payments into in order to accrue a lump sum that you can use to pay off the total owed at the end of the mortgage term. You will need to make these monthly savings regularly because different savings options will have different interest rates, which may vary over time, so it is necessary to make sure you continue to pay in the right amount to stay up-to-date.
An interest-only mortgage is one in which you only pay off the interest accrued on the total capital each month, while the capital owed remains the same throughout the period of the mortgage deal. http://www.theautoinsuranceworld.co.cc
Advantages of Interest-Only Deals:
According to the Financial Services Authority, in every ten households,four have interest-only mortgages. There are a number of advantages on interest-only mortgage deals, basically. that monthly repayments will be significantly lower than with a repayment mortgage. This means that you will keep more of your income each month to spend on family, or on home improvements, for instance, with a very low base rate, an interest-only mortgage deal can seem almost cheap to maintain.
An interest-only mortgage is also considered to be preferable in the eyes of buy-to-let investors. This is because they are able to claim back tax on the mortgage interest, and they expect that rises in the property market will enable them to make capital repayments later on.
With interest-only mortgage deals, you can choose a savings account or repayment vehicle which attracts the best interest rates and is tax-efficient. And If this is well managed alongside the mortgage and if the payments is maintained, this option could even save you money in the long run.
The dis-advantages of Interest-Only Deals:
Interest-only mortgages are considered risky, as they do not provide the borrower with a complete outline of how they will pay off the capital they owe, and this can cause problems when the mortgage term ends if there is outstanding debt and no alternative means of repayment.
Also, while a repayment mortgage may be more expensive in the short term, in the long run, you will be reducing the total capital owed which will, in turn, reduce the interest paid as well.But with an interest-only mortgage deal, however, the capital will still be payable in full at the end of the mortgage term
Recommendations
If you choose an interest-only mortgage deal, it is best to use a separate savings account or repayment vehicle in which you also make monthly payments into, to ensure you will be able to pay off the capital by the end of the mortgage term. Otherwise you will need to make capital available to pay off the remaining amount owed by the end of the mortgage term.
A repayment vehicle can be an ISA, which you make monthly payments into in order to accrue a lump sum that you can use to pay off the total owed at the end of the mortgage term. You will need to make these monthly savings regularly because different savings options will have different interest rates, which may vary over time, so it is necessary to make sure you continue to pay in the right amount to stay up-to-date.
Monday, June 14, 2010
How Does A Reverse Mortgage Work - Why Do You Need It
This loan type can be the best solution for you, but it is advisable to find out how it works and what the alternatives are.
The most important thing to know is that this type of loan is always expensive.
www.theautoinsuranceworld.co.cc
1. How it works
How does a reverse mortgage work? The first thing you should know is, that this is an expensive loan and by that I mean the costs of the loans, which go to the lender is high. When these costs roll many years before you pay back all the costs and the capital, the multiplier effect is very alarming.
For a senior it is quite complicated to calculate the costs and that is why the Federal Government has organized a special counselor network, which helps a senior. Additionally these counselor meetings are compulsory for some of the loans. However, it is highly recommended, that you go and meet the counselor, before you sign anything, because he can give a detailed explaination of how it works.
2. Who are they meant for and for purpose
These loans are meant for the persons, who have modest pensions or incomes and who have their homes as main assets. The idea is to use a part of the home equity for daily expenses or for some other serious usage. When the home equity is saved during a long period of time, a senior reverse mortgage is seen as a last resource to get some extra cash.
3. It Is Easy To Take, Because The Costs Are Hidden.
This is the feature, which gives an impression that the money comes from thin air. If a senior has a strong need of extra cash for his daily expenses, he can have a temptation to take this loan easily, because he only thinks about the cash without giving thought to the additional expenses, which he has to make when the loan will be closed.
4. You Spend A Long Saved Mortgage.
It is important to understand that this money being spent now, by a senior and his spouse,is the money they saved over a long period of time, he must be sure, that he knows all the details of this loan type so as to take a good decision. He should be aware that this type of loan may decrease the future earnings of their heirs.
5. A Wise Usage Is To Buy A Home For Your Child.
Although the idea of the senior reverse mortgage is, that a senior can use a part of the home equity for some other purposes, one good idea is to use it to buy a home for a child. This creates an opportunity for the money to be retained in the property and to continue to grow according to the general home price increase.
The most important thing to know is that this type of loan is always expensive.
www.theautoinsuranceworld.co.cc
1. How it works
How does a reverse mortgage work? The first thing you should know is, that this is an expensive loan and by that I mean the costs of the loans, which go to the lender is high. When these costs roll many years before you pay back all the costs and the capital, the multiplier effect is very alarming.
For a senior it is quite complicated to calculate the costs and that is why the Federal Government has organized a special counselor network, which helps a senior. Additionally these counselor meetings are compulsory for some of the loans. However, it is highly recommended, that you go and meet the counselor, before you sign anything, because he can give a detailed explaination of how it works.
2. Who are they meant for and for purpose
These loans are meant for the persons, who have modest pensions or incomes and who have their homes as main assets. The idea is to use a part of the home equity for daily expenses or for some other serious usage. When the home equity is saved during a long period of time, a senior reverse mortgage is seen as a last resource to get some extra cash.
3. It Is Easy To Take, Because The Costs Are Hidden.
This is the feature, which gives an impression that the money comes from thin air. If a senior has a strong need of extra cash for his daily expenses, he can have a temptation to take this loan easily, because he only thinks about the cash without giving thought to the additional expenses, which he has to make when the loan will be closed.
4. You Spend A Long Saved Mortgage.
It is important to understand that this money being spent now, by a senior and his spouse,is the money they saved over a long period of time, he must be sure, that he knows all the details of this loan type so as to take a good decision. He should be aware that this type of loan may decrease the future earnings of their heirs.
5. A Wise Usage Is To Buy A Home For Your Child.
Although the idea of the senior reverse mortgage is, that a senior can use a part of the home equity for some other purposes, one good idea is to use it to buy a home for a child. This creates an opportunity for the money to be retained in the property and to continue to grow according to the general home price increase.
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