Owning your own home is one of those properly grown-up things that becomes increasingly more important as your thirties looms closer. Most people cannot afford to buy a home outright, even after ten or fifteen years of working hard and saving as much as possible, so they must apply for a mortgage.
The word mortgage comes from the Latin which translates to 'death pledge.' The word comes from owing an obligation so vast that it could not be settled during a lifetime, so that, in effect, the debt was considered settled only when the debtor died. These days mortgages are not quite so punitive, but often can run for very long periods of time. Halifax offers mortgages that can be as short as one year in duration, or as much as 40 – although you must be under 75 at the expiration of this term – which gives would-be home-owners a great deal of choice in how long they will be paying back the home loan. In general, mortgages run for 25 to 30 years, and often require a deposit of 10 to 50 percent of the value of the home to be put down first.
Mortgages fall into different categories: tracker mortgages which remain fixed half a percent above the Bank of England lending rate, which can see your mortgage repayments rise and fall with global economic fluctuations; fixed rate mortgages, where the amount you repay is set in stone for the duration of the loan. The latter are excellent if you manage to sign on when the lending rate is very low, but banks are canny enough to allow for some leeway in the rate, and will probably set the rate high enough to cover them in the event of a major raise in the interest rate. Other types of mortgage are available, some of which require renegotiation at certain points in the life of the mortgage, to ensure that both parties are getting as good a deal as possible.
Paying back a mortgage is likely to be your biggest expense for some decades, so it is wise to make sure you have the best possible deal before you commit yourself to any one particular bank or loan company. Be wary of 'middle-men' who claim to be impartial. They may well earn a fee for directing your custom to one particular company – one that will not necessarily offer you the best deal! Sometimes these 'middlemen' will demand a finder's fee for connecting you to a company that you could have found on your own, with a little bit of online research!
The issue of negative equity, which first raised its ugly head in the 1980s, is when the value of the outstanding mortgage exceeds that of the property. This happens when the property market dips and houses and other buildings lose their paper value. Should this happen to you, after you have just taken out a mortgage, the important thing is not to panic! Negative equity is only a problem if you want to sell the house or you want to borrow more money against it. If you keep your head down, and continue to pay off the mortgage according to the agreement, the stock market will shift again soon, putting the value back into your home!
When you are repaying your mortgage, as with many other types of credit, try to pay back a little extra each year. Most companies will allow up to 10 percent of the loan to be paid back early, and this can represent a considerable saving as regards interest paid to the loan company. If you get into financial difficulties and are going to be struggling to make your repayments, your first port of call should be to the finance company. It is important to let them know what the problem is, and how you are planning to resolve it – or even a flat-out appeal for their advice! – rather than simply letting yourself fall behind with the payments. Not telling the company and then missing payments can result in you incurring default charges, a bad credit report and possibly even ultimately losing your home.
In the UK at present, RBS, NatWest and Yorkshire Building Society all have a good range of mortgages available, each geared to meet different needs and income levels. Chelsea Building Society, First Direct and HSBC all appear on the 'top ten' list for mortgage providers too. Halifax Building Society prides itself on being the best establishment to guide first time buyers through the mortgage process, offering a wealth of valuable, easy-to-understand information on their mortgage FAQs page.