Shopping around mortgage deals
We might require financiation in our lives for a number of reasons and in very different situations, and in all cases the amount of the loan or scheme will be in proportion with the potential cost of making a wrong decision. When we make deals with reliable lenders who play by the rules, the worst case scenario that we can face is to see our total expenses increase because of missed payments or adjusted rates. These increases are proportional to the amount as rates and fees are often expressed as a precentage of the total debt. In other words, the larger the loan is, the more money you might loose if you don’t make the right choices from the beginning.
One of the largest credit scheme is mortgages, which are massive loans or credits against the value of your property. You could borrow money to pay all or part of a house, or finance your life by selling part of it, collecting the money in advance. We will get back at this last choice later.
And making the right choices is about finding a good lender, choosing a convenient scheme and engaging in a payment plan that works for you money availability and your income, and has some slack for unforseen situations. All lenders will tell you they are the best and their packages are the most convenient, so how can you really know which deal is the best for you?
Mortgage schemes: which one is best?
The general concept of a mortgage is a deal between a lender and a borrower, in which some money is exchanged for the equity or net value of a property. This flow of money can go both ways: either you finance your purchase of a property with a loan, and then make payments to give the money back and increase your equity on the property – calculated as the property’s value less all standing debt over it – or you sell part or all of your property to a lender and get a lump sum, income or drawdown fund instead, while still being allowed to live in your property. The first scheme is called forward mortgage, or just mortgage, and the second one is known as equity release or reverse mortgage.
If you want to get the best deal, you need to understand the difference between all these schemes, because how they work varies greatly. Sites like the SEC archives will be of great help. Government sites will provide information on the different schemes as well as the lender’s liabilities and responsibilities to you, that you have the right to request. Here you will learn about Types of Reverse Mortgage Products and the specifications of each one of them.
If you want to control your debt, there are certain schemes that allow you to keep it to a minimum. Deals with convenient rates or good rate caps will also work. There are different types of rate caps but they all have the same purpose, which is to limit how much your lender can increase interest rates at will. These caps will help you calculate how much could your debt grow in the worst case of scenarios. If you want more information on what are rate caps and how do they work, click on this link.
Compare drawdown mortgages
Perhaps the most efficient way to control your debt is to engage in a drawdown mortgage scheme. These are often reverse mortgages or Home Equity Loans of some sort, because you don’t get a lump sum but instead have access to a limited fund from where you can draw as much money as you choose. The more you take, the more interests you will have to pay. Inversely, if you don’t extract much money, your debt will be kept to a minimum.
This is perfect for keeping the costs under control, because when you ask for a lump sum or an income you might find yourself under budget, borrowing more than you needed – but you still have to pay interests for it. It is almost impossible to know for sure how much money you will need over the course of the years, so a drawdown scheme helps keep costs to their minimum and follow your debt closely. The less debt you gather, the most of your property’s value you will be able to inherit to your children or grandchildren when it is sold.
You need to compare different drawdown mortgage providers in order to ensure that the future generations get as much as possible, without you having to resign the life quality of your last years.