Mortgages

Question 1

What is a mortgage?

Answer 1

• Mortgages are a type of long term loan designed for purchasing a house or property. They aren’t viewed as ‘bad debt’ like credit cards, and are welcomed as the only way a majority of people can purchase a property.
• You pay interest on a mortgage and monthly payments.

Question 2

What are the costs involved in buying a house?

Answer 2

• deposit
• mortgage agreement
• house survey
• search fees
• stamp duty

Question 3

What are the three types of mortgage?

Answer 3

• fixed rate
• tracker
• variable rate

Question 4

Describe a fixed rate mortgage?

Answer 4

• the interest rate is fixed for a certain number of years, then the rate increases to the variable rate.
• once the fixed period is complete you are free to find another deal. (Remortgage)
• often to get a good rate you must pay an upfront fee (eg. £1000)

Question 5

Describe a tracker mortgage

Answer 5

• follows the Bank of England base rate and rises and falls along with it.
• E.g may be always 1.5% above BoE rate

Question 6

Describe variable rate mortgages?

Answer 6

• rate set by the bank and can increase or decrease, its not the cheapest way to pay for a mortgage and is what fixed rate mortgages switch too after their deal is complete

Question 7

How do you calculate monthly payments for mortgages?

Answer 7

• Outstanding mortgage E.g £250,000
• increase by the interest rate(/12)
• subtract the monthly payment to get the remaining mortgage

Question 8

How do you calculate the yearly payments for mortgages?

Answer 8

• outstanding mortgage
• increase by APR interest rate
• subtract 12 monthly payments from the total to get the remaining mortgage