mortgage Flashcards
what are the factors to consider when choosing a mortgage
important for individuals to shop around as the lower interest the cheaper the cost of the mortgage
consider the type of interest offered as this will affect the total cost of the mortgage
some lending agencies may offer a mortgage payment break for times when individuals cannot afford repayments, e.g. due to job loss
some lending agencies offer incentives to first-time buyers, e.g. lower interest for the first year
what is fixed rate
-the interest rate is fixed so it cannot change for a set period of time.
-no risk is involved: if the European central bank rates go up the interest will remain the same so the borrower knows exactly how much the payments will be monthly
what is variable rate
-the interest rate varies
-if the ECB rates fall the borrower will have lower monthly repayments. if the ECB rates increase repayments will be higher
-if the ECB rates fall banks often do not pass the reduction on to the borrower straight away
what is a tracker
-the interest rate tracks the ECB rates and is usually 1% higher
-if the ECB rates fall the borrower will have lower monthly repayments. if the ECB rates increase repayments will be higher
-if the ECB rates fall the reduction passes on to the borrower straight away
what are the conditions to qualify for a mortgage
-credit history
-deposit
-good investment
explain credit history as a condition to qualify for a mortgage
applicants need to have a good credit history before they will be considered for a mortgage
explain deposit as a condition to qualify for a mortgage
-first-time buyers require a 10% deposit
-non-first time buyers require a 20% deposit
explain good investment as a condition to qualify for a mortgage
a lending agency will get a property surveyed to check the structural quality before granting a mortgage, to ensure the property is a good investment,
what is annuity mortgage
-this is the most popular mortgage type
-each monthly mortgage repayment goes towards paying the interest rate on the loan and paying off the principal amount borrowed
-little risk is involved with this mortgage type
-a mortgage protection policy is compulsory requirement of this mortgage
what is endowment mortgage
-this mortgage combines borrowing and investing
-each monthly repayment goes towards: paying the interest rate on the loan and paying a premium into an endowment life assurance policy
-at the end of the mortgage term, the endowment policy is encashed to pay off the principal amount borrowed. any surplus money can be used for personal spending
-a mortgage protection policy is not required as it is included in the premium
what is pension mortgage
-combines borrowing and investing
-each monthly repayment goes towards paying the interest loan and paying a premium into a pension scheme investment policy
-at the end of the mortgage term the pension scheme investment policy is encashed to repay the principal amount borrowed and provide a pension fund for retirement
-a mortgage protection policy is a compulsory requirement of this mortgage
explain the term mortgage protection and state why mortgage protection is necessary
under the consumer credit act 1995, a mortgage lending agency is obliged to ensure that a borrower has mortgage protection policy in place to cover the balance due on a mortgage in the event of their death or in the case of a joint mortgage account and in the event of the death of one of the borrowers
