You will be lucky enough if you are affluent that you can buy a home without taking out a mortgage. Well, not everyone is born with a silver spoon in the mouth. While there is an alarming rise in the rate of inflation, buying a dream house without seeking a loan seems all but impossible. You need to go to reputed direct lenders like https://www.shinemortgages.co.uk/ to get a foot onto the property ladder in the UK.
A mortgage means, whether it is residential or commercial property, securing the loan against your property. However, buying a property requires you to have enough money called a deposit size to borrow money from a direct lender. If you want to buy a home, you need to have a minimum of 5% deposit size. It goes up to 25% in the case of a commercial mortgage. The money you borrow from a direct lender is known as loan-to-value. You know about these basic terms of a mortgage. However, there is still more to explore.
Your property will be entitled to a lien
A lien is a kind of claim that a direct lender has on your property that you possess or use unless you pay off the entire debt. For instance, you have borrowed £50,000 to buy a house. You will find that there is a lien on your property. This cannot be removed unless you pay back the whole of the debt i.e. £50,000. By putting a lien, the lender holds the title.
Here is how a lein works
You are supposed to pay down instalments of your loan. If you successfully pay all payments, you will get the title of the property immediately and the lien does no longer exist. If you stop making payments, the lender will continue to hold the title unless the property is sold or paid for. You are likely to lose your property if you fall behind repayments. A direct lender can claim the ownership with the help of a lien if you do not make payments.
However, it does not mean that the direct lender will oust you from your house as you miss a payment. In the beginning, the lender will analyse your financial condition to evaluate how much you could pay. This will help them decide a new repayment plan so that you can start by paying the loan. If you completely become incapable to pay back the debt, the lender will put your house on sale or auction to recover funds.
Can you port your mortgage?
When it comes to porting a mortgage, it does not mean that your mortgage is transferred from existing property to a new property. It means the rate and terms and conditions are transferred without having to pay an early prepayment charge. You have to apply for a mortgage in the usual way. Your lender will consider your financial condition because it will have likely changed by the time you port your mortgage. The lending decision will be based on your incomings, outgoings and personal circumstances. The lender will also evaluate the value of your new property.
What if you are buying a home that costs higher than you had previously?
A lender will take into account the price of your home before approving the loan. Suppose the due mortgage is £200,000 and now you are looking to buy a home that is worth £500,000. So there is a difference of £300,000. You need to borrow additional £300,000. By the time, you move home, the interest rates are likely to go up. The lender will offer you a blend of interest rates on your new mortgage so that you will be paying in the middle of old and new interest rates. In such a case, there is no risk of paying a penalty.
What if you are buying a home that costs lower than you had previously?
For instance, your due mortgage is £200,000 and you are buying a new house that costs £100,000. The amount you are borrowing has been reduced by £100,000 and as a result, you will end up paying penalty. It is likely to be very high but will be significantly lower than the total cost of the mortgage. The interest rate will be the same as you had at your previous mortgage deal.
Like any other loan, mortgages also incur penalties when you do not follow terms and conditions. The concept of penalty is extremely complicated and it depends on each lender’s policies. Be careful with the terms and conditions of a lender. If you pay your mortgage early, you will pay the prepayment penalty. It can cost you a small fortune.
The bottom line
Getting onto a property ladder is not easy. While budgeting, interest rates and the type of mortgage matters before taking the plunge, Even if you are moving your new house, make sure that you port your mortgage with the same lender to avoid prepayment penalty.