If you are thinking about purchasing a property, you no doubt need to acquire a mortgage. While the venture may initially seem uncomplicated, it doesn’t take long to realize that there are many aspects to applying for a mortgage, in fact these can make the whole process actually feel more like a mission impossible!
One of the aspects to a mortgage application which can seem more than a little confusing is understanding the interest rate. Let’s take a quick look at a few of the interest rate details that can make the whole process a little clearer.
What Is A Mortgage Interest Rate?
When you take out a mortgage, in effect you borrow capital, a sum of money, from the lender. The lender then charges you interest on the sum of money which you now owe them. The interest rate which you are offered will depend on the lender. Generally they take several matters into account when deciding which interest rate you are going to be eligible for.
What Will A Lender Take Into Account When Deciding Which Interest Rate I Am Eligible For?
There are some offers for low interest rates on the market, however many people will not be eligible for them. In general, such low interest rates are available to people who are able to give a large deposit, or in the case of remortgaging, people who have a considerable amount of equity in their property.
How Do You Pay Off The Interest?
Imagine that your mortgage is made up of two parts; the capital which you have borrowed and the interest charged on the capital. In general, you will pay off both the capital and the interest on a monthly basis over a long period of time. Often, mortgages are spread out over 25 or 30 years, although this figure will depend on the age of the applicant.
What Does An Interest Only Mortgage Mean?
You may have the option to choose an interest only mortgage. In this case you will only pay the interest on the capital each month. However, at some point or another you are going to need to pay the capital as well. Lenders can be wary to offer this mortgage plan, as the borrower may not have a repayment plan in place and fail to be in a position to pay off the capital when the term is complete.
Indeed, the decision to purchase a home is an exciting one. There are so many plans to be made, rooms to be decorated and fun to be had putting your own stamp on your new home. However, the venture also comes with a fair amount of stress, including understanding how mortgages work. Take the time to analyse the various interest rates on the market today and consider which ones you would be eligible for. This should put you in a good position to make an excellent choice, both for now and for your future.