Buying a home is one of the biggest commitments you will ever undertake. So choosing your mortgage does take thought. Take some time to consider what mortgage is right for you. After all it’s your money you will be spending so, I would recommend utilizing it in the best way possible.
The kinds of mortgage available to you
There are many different mortgages on the market at the moment, all offering something different, something similar but essentially offering one of two types:
Repayment and Interest, with a repayment and interest mortgage you (the lender) you will have to payback the specified mortgage amount plus the interest in a specified time.
Interest only, with an interest only mortgage you only pay the interest on you mortgage, however when the term of your mortgage is over you are still left with the initial buying fee of your house. Most investors like having interest only loans because it increases the cash flow on the property and many investors who have challenges of show their income choose the no doc mortgage programs.
Advantages of a repayment and interest mortgage
It is possible for you to pay off lump sums of your mortgage to minimize the balance and make term shorter. However do be careful as some lenders do charge for a early repayment. If you do decide to repay early it is better to do upon the changing period of your mortgage i.e. when you are eligible to start another discounted term with another lender.
You know the full balance of your mortgage and also the term of the repayment, so you always know when your mortgage will be paid in full.
Disadvantages of a repayment and interest mortgage
In the early years of a repaying your mortgage the majority of the monthly repayment is interest rather than capital. For lenders who move house regularly, this can mean that little of the capital is paid off.
If no life insurance, pensions or assets are in place to cover the repayment of the house. In the unfortunate event of a death the house will still have to be repaid. If payments are not kept up to date then the house will be sold.
There may be financial penalties for making additional payment into your mortgage account. I
If you want to buy an investment property without showing tax returns, W2’s or paystubs then the best option is a no doc mortgage program.