Your Easy Guide To Mortgages, Part 2
Last week, we gave you the A to M of the homeowner's alphabet. If you want to be an authority in this field, then read part two.
A week ago, in Your Easy Guide To Mortgages, we revealed the first part of our plain English guide to buying and owning a home. Now it's time for the second part of our home-owning alphabet:
O is for...
Offset and current account mortgages (CAMs)
Offset mortgages didn't exist in the UK until 1994, when they were introduced here from Australia. With an offset mortgage, your savings pot is 'offset' against your mortgage debt, so you pay interest only on the difference. So, with a £100,000 home loan and £25,000 of savings in an offset account, you would pay interest only on your net debt of £75,000.
Thus, instead of paying tax on your savings interest, in effect, you 'earn' tax-free interest on your offset savings at your (higher) mortgage interest rate. With a current account mortgage, your current account's credit balance is also used to reduce your mortgage debt, further lowering your interest bill. You can learn more about these thoroughly modern mortgages in Claim Your Share Of £29 Billion.
R is for...
Quite simply, remortgaging is replacing your current home loan with another. Of course, you don't have to remortgage for exactly the same amount -- indeed, many people take out a larger loan in order to 'unlock' capital from their home. Furthermore, you don't have to remortgage with the same lender, so it pays to shop around for the best deal available at the time. The Fool's award-winning, no-fee mortgage service does this for you by searching the whole market while you sit back and save money.
If you don't want to hire a van and move your house contents yourself, then expect to pay a removals firm upwards of £600 to do this for you. For more advice, visit trade association the British Association of Removers.
Do you remember the mortgage warning, "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it"? Repossession is the term used by mortgage lenders when they seize properties because borrowers are unable to keep up repayments. Earlier this year, I warned of soaring repossessions in Your Home Is At Risk.
S is for...
Second mortgages and secured loans
In Borrowing To Improve Your Home, I explained how you can take out a second mortgage or secured loan against your property in order to pay for home improvements. These loans enable homeowners to borrow cheaply (and over long periods), but they do have their drawbacks -- not least the risk that you could lose the roof over your head. In the last property crash, I appeared in court to witness people losing their homes thanks to secured loans, so I'm a big critic of this form of credit!
StampDuty LandTax (SDLT)
This is a tax paid by property buyers, not sellers. Although SDLT is a fixed percentage of the purchase price, the rates of tax are banded. Hence, higher-value properties attract a higher rate of tax on the entire purchase price, not just the amount in excess over previous bands, as follows:
SDLT rate (%)
Up to £125,000
Over £125,000 to £250,000
Over £250,000 to £500,000
Nowadays, as most homes in the UK sell for far more than £125,000, HM Treasury rakes in billions of pounds a year in SDLT revenue, making Gordon Brown one of the big winners in the housing boom.
T is for...
Back in our schooldays, we yearned for the end of term and the ensuing holiday. Likewise, mortgage borrowers long for the end of their mortgage term, when their home loan expires and they become mortgage-free. Hurray!
V is for...
Valuation or survey fee
This is the charge made by a valuer for placing a value on a property which you wish to buy, or the fee levied by a surveyor to inspect a property on your behalf. Although a simple 'drive by' valuation may be free as part of a mortgage package, expect to pay £200+ for a basic survey, £400+ for a more detailed homebuyer's report, or £800+ for a full structural survey.
So, there you have it: the A to Z (or, strictly speaking, the A to V) of home-owning. If you believe that I've omitted anything, then please feel free to comment by clicking on the 'Give feedback' link below. Armed with this knowledge, you can now look forward to many years of happy home-owning!