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First time mortgage

One of the most exciting days in someone’s life is the first time they property. Ideally, the property would be paid in full by cash. But this is usually unattainable, especially for first time buyers. James Smiths’ article, “First time buyers’ mortgage,” found on my-articles.com, explains the different mortgage options available for first time buyers.

“Property is an investment, and if purchased in a planned way is beneficial otherwise it may be dangerous if a high amount is borrowed. Most of the financial authorities prefer the first time buyer and offers various incentives. You should contact to an estate agent and discuss about your financial health, repayment options, and selection of mortgage and redemption options.”

There are a few basic mortgage options that are offered to first time buyers.

The first mortgage has two independent options; fixed rate mortgage and adjustable rate mortgage.

“In fixed rate mortgage, the interest rate remains same for throughout the mortgage periods. The benefits of fixed types of mortgage are that you can plan in advance the amount to be paid.”

The adjustable rate mortgage is ideal for first time buyers because it will initially be cheaper. But there is a chance of interest rates rising and the monthly payment could rise much higher than a fixed rate mortgage.

“In adjustable rate mortgage, interest rate generally starts lower than the fixed rate mortgage and may vary once or twice during the year as these rates are linked to a financial index.”

Another mortgage option for first time buyers is the interest only option.

“Some lenders may give an option for a few years for repayment option of loan interest only. In such cases, the repayment amount will be low, but principle amount will remain as such. So this option is not favorable.”

How much of a loan should you borrow?

“Many lenders may offer 100% of the property value and up to 5 times salary of the individuals. It is recommended that a single person should take between 2.5 to 3 times of the salary and couples should take 2 to 2.5 times of the salary.”

A last, important note for first time buyers is that they may be asked by the lender to deposit between five and 10 percent of the loan amount for a lower risk of mortgage default. If the deposit amount is less than the expected amount, the lender may force the borrower to buy MIG.

MIG (Mortgage Indemnity Guaranteed) is an insurance policy that provides protection to the lender in case of a payment failure. “These MIG are of no use to the borrower, as the premium amount of these policies has to be paid by borrower.”

As a result, the borrower should try to make the initial deposit of five to 10 percent.

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