For most of the population in Scotland the largest loan they ever have is from a building society or bank who will lend the money for the applicant to buy a house but it is important they understand how to avoid mortgage arrears too.
Owning property is considered a rite of passage in the UK and is the ambition of most people, however the prospect of mortgage arrears never occurs to most mortgage applicants as the determination to own a house is their priority.
When an individual has a regular, healthy income and has amassed savings for a large deposit, applying for a mortgage is the next step. There are few who can afford to buy a property without one.
Mortgages can be complicated and for a novice in financial matters it can be overwhelming.
The Scotland’s Trust Deed simple guide to the differences between the two main types of mortgage, re-payment and interest-only, will give you pointers as to which is the best for you. This knowledge should help when discussing your next steps to home ownership with your financial or mortgage advisor.
Repayment or Interest only mortgages
Choosing between these two is the biggest decision, though often an applicant will simply be offered one or the other based on their circumstances.
Repayment: This is the most common type of mortgage. Every monthly payment is made up of both interest and a proportion of the original loan.
At first, when the amount you owe is highest, the majority of each payment will be interest. This can be disconcerting when checking your statements.
Later, as the loan amount decreases and the monthly interest reduces, it will be the actual loan you are paying off. By the time your agreed mortgage time frame is over, all of the loan and interest will be paid off.
Interest only: With this type of mortgage your monthly payments will be much lower as you are only paying the interest on your loan. There is usually the option to make extra payments to whittle away at the loan itself but some lenders charge a fee for doing so.
Interest only loans are cheaper so the likelihood of mortgage arrears is much lower. However, at the end of the life of the mortgage the loan in its entirety will need to be paid. Provision will need to have been made for this and unfortunately this is not always the case.
It is becoming much rarer for Interest Only mortgages to be offered and it is usually to customers who have a large amount as a down payment and bigger salaries. This is ironic as they are the type of people that are more likely to be able to afford the monthly amount on a repayment mortgage.
The dream of home ownership
Sadly, for some the dream of home ownership can become a nightmare. Missing mortgage payments through losing a job, illness or a relationship breakdown is often the beginning of a frightening slide into financial stress.
Scotland’s Trust Deed have the expertise and knowledge to advise home owners with mortgage arrears and other financial troubles; we are often able to find a way for our customers to regain control and reduce their debt while also protecting their home.
This is where the attraction of a trust deed or a debt arrangement scheme may prove useful – and these are only available to people living in Scotland – so for those Scots who are struggling with debt then act now and contact the debt advisors at Scotland’s Trust Deed.