A mortgage advance refers to the actual amount of money that is loaned to a borrower by a lender under the terms of a mortgage agreement. This sum is advanced to facilitate the purchase of a property, and the borrower agrees to repay this amount, along with any interest and potentially other charges, over an agreed period.
Key Points About Mortgage Advances
Funding Property Purchase:
The mortgage advance is primarily used to fund the purchase of a residential or commercial property. It covers the bulk of the purchase price, with the remainder typically paid by the borrower as a deposit.Payment to Seller:
The funds from a mortgage advance are usually transferred directly to the seller’s solicitor on the completion date of the property transaction, rather than being given to the borrower.Repayment Terms:
The borrower repays the mortgage advance over time, according to the terms of the mortgage. This can be through a repayment (capital and interest) mortgage, an interest-only mortgage, or a combination of both.Interest Rates:
The amount of interest you pay on a mortgage advance depends on the type of mortgage, the term, and the interest rate agreed upon with the lender. Interest rates can be fixed, variable, or tied to a tracker rate.Additional Advances:
Some lenders may offer the option of taking further advances on an existing mortgage, subject to approval. These additional funds can be used for home improvements, debt consolidation, or other significant expenses. Additional advances often require a new agreement and may have different terms and interest rates than the original mortgage.Considerations
Affordability:
Before offering a mortgage advance, lenders conduct thorough affordability checks to ensure that borrowers can meet the monthly repayment obligations over the term of the mortgage.Charges and Fees:
Apart from interest, there may be additional charges associated with taking out a mortgage advance, including arrangement fees, valuation fees, and legal fees.Early Repayment Charges:
Some mortgages come with early repayment charges (ERCs) if you repay the mortgage or a significant portion of it within a specified period. Understanding the specifics of a mortgage advance, including how much you can borrow, the repayment terms, and any associated costs, is crucial when considering a mortgage. It’s advisable to seek advice from a mortgage advisor or broker to find the best mortgage product that fits your financial situation and goals.
Answered by:
Alison Gibson
Mortgage and Protection Adviser
Last Updated:
18.06.2024
Answered by:
Alison Gibson
Mortgage and Protection Adviser
Last Updated:
18.06.2024
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