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Buying a home nowadays is one of the most expensive processes and
largest financial commitments that any individual can make. Making
an application for a mortgage or ‘home loan’ is often
the only way in which people can make this step towards purchasing
their own home. The mortgage lending market is continually expanding
and there have never been so many different mortgage companies offering
so many different types of mortgage schemes to their customers. Whatever
the type of mortgage scheme you decide on ,the basic principle will
remain the same. The mortgage company will allocate and lend you the
specified amount, and until the full repayment of the mortgage amount,
your house will act as collateral for the mortgage lending company.
This is known as the ‘equity of redemption’ principle,
in that the mortgage company will only surrender all claims on the
property upon the full repayment of the mortgage amount. The repayment
will also be subject to additional interest and APR rates.
In allocating you a mortgage, the lending company is providing
you with a very large loan amount and for this reason, all mortgage
applicants will be subject to various checks and assessments, on
both their personal financial standing as well as the value and
condition of the property in questions. The mortgage company will
conduct a credit check, to assess the customer’s ‘free’
income, that is financial assets that are not tied up in stocks,
shares or property, and also to show up any adverse financial history,
such as poor credit ratings. This should also be viewed as an advantageous
process for the customer themselves, seeing as it will provide a
realistic assessment of the financial situation, and will prevent
them from committing to a mortgage scheme which they will in reality
be unable to afford and repay. Committing to a mortgage scheme that
is so much beyond your means will ultimately place your home at
great risk, and so this decision should never be taken lightly.
However, with the introduction of ‘flexible’ mortgage
schemes, home loan repayments do not have to be such a rigid financial
strain on the customer. With these ‘flexible’ mortgage
schemes customers are offered payment holiday periods, during which
they are freed from the strain of repayments for certain periods
of the year. There is also the option of under or over payments,
which makes the whole mortgage repayment process so much easier
to deal with.
Aside from the assessments relating to the individuals financial
situation, the mortgage company will also conduct a survey and valuation
of the property, as this will ultimately impact on the amount of
money that is allocated in the mortgage loan. Generally though,
it is very uncommon for the mortgage company to lend an amount equal
to the property’s entire value, and so the customer will usually
be required to surrender the deposit amount for themselves, and
this is usually equal to between 5-10% of the property’s total
value. The more that the customer can afford to pay at this stage
will help them to maintain a positive equity status for the property,
so that should the property be sold on, the profit would still exceed
the costs of repayments and interest charges.
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