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Mortgage repayments for first time buyers
Having your own home in the current financial climate is a lofty aspiration and daunting for anyone, especially dentists who are first time buyers. The amount of money needed for a deposit to secure your house is astronomical, so despite it being a dream of many to own a house, it is an exceptionally stressful time.
At any one time there are more than 7000 mortgages available, each with their own differences and subtle particulars. Seeking the services of an experienced Independent Financial Adviser (IFA) is of paramount importance if you are considering setting up a mortgage.
Before you begin, you must make sure that you have the best chance of securing the home you want. Therefore you need a mortgage agreement in principle (AIP).
An AIP involves a full credit check by your lender and confirmation in writing about how much they are willing to lend to you based on the information you have provided. This is especially important because it affirms your desire as a bidder to the seller of the property and provides you with a good financial foundation to go on when buying a property.
The starting point for dentists in any type of mortgage is how you intend to pay it back. Essentially there are two methods of paying back your mortgage.
Repayment mortgages work exactly the same way that normal loans do. Monthly repayments include not only a small percentage of the overall capital loan but also the interest due with the agreed amount. As the loan begins to reduce, the interest becomes smaller and you can pay off larger chunks of the capital, meaning at the end of the term you have a paid off what is owed with minimal risk.
Secondly, there are interest-only repayments. This means that there are no repayments of your capital at all, so unless you overpay each month your capital will not reduce, but you can set up an individual savings account to grow over the years to repay the capital loan. This is more risky because if you do not have the sufficient funds available to repay the capital at the end of your term, you may be forced to sell your property.
Borrowers have taken out a lot of interest-only mortgages within recent years without setting up savings accounts to pay back their capital, relying on the growth of their value in property to do what their savings should. However with the fall of property prices over the years, lenders have turned from providing interest-only mortgages and have set up certain criteria if prospective borrowers do take this option. The most important of these is that many lenders will now only permit an interest-only mortgage for those who have proven an existing repayment plan.
As far as rates go, after you have chosen your repayment method, there are a few options to look at.
Variable and tracker rates mean that the rate of payment is changed regarding any decisions by your lender or the Bank of England. What this implies is essentially that you could pay more or less money dependant on the Bank of England's base rate.
Fixed rates, however, involve you agreeing to fix the sum you pay at an amount for a period of time. What this ensures is peace of mind. You will always know that you are paying an inflexible amount for a set time and that you can budget in accordance to your mortgage. However, the danger is that if there is a reduction in the variable and tracker rates, you will have to remain on the fixed rate without the opportunity of paying less.
With fixed rates there are also normally redemption and tie-in penalties. What this means is that if for any reason you repay the whole loan before your fixed term is up, you will incur a charge on top of the amount you originally owe. However this is not a major swaying point for many people, as with a fixed rate mortgage you do not have to worry about an increase in interest rates resulting in you paying more, opposed to if you are on a variable and tracker mortgage.
Variable and tracker rates were for a time seen as cheaper than fixed rates. Yet, now that interest rates have dropped this is not necessarily the case and lenders now tend to turn their attention to fixed rate mortgages over variable and tracker mortgages.
For the majority of people a mortgage is the biggest loan they will ever take out and also one that will last the longest. The descriptions above are incredibly simple and do not cover the minutiae of the different mortgage plans. Therefore it is vital that you chose one tailored to your requirements and future needs.
If you are feeling trapped in mortgage limbo, independent advice is absolutely crucial for practicing dentists. money4dentist's IFAs are committed to helping you sort out what you need financially. With over half a century of experience, they provide each client with the upmost care and are dedicated to doing so. Seek advice from a specialist IFA, so when the time does come to buy, you are prepared