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Mortgages and renting. Learning outcomes. The main learning outcomes for this lesson are:- Learn what mortgages are and who needs them. Learn the differences between buying and renting. Starter. Show the video called ‘Beginners guide to Mortgages’.
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Learning outcomes The main learning outcomes for this lesson are:- Learn what mortgages are and who needs them. Learn the differences between buying and renting.
Starter • Show the video called ‘Beginners guide to Mortgages’. • http://www.youtube.com/watch?v=fCZ__KKtNcI • You will need to make notes as you watch the video as you will be answering questions after the video.
Mortgages explained • Most people see mortgages as a bit of a mine field. You must make sure you understand fully what is involved in mortgages before you find your dream home! • Mortgages are for anyone who wants to buy a property who is 18 years or older. • The first step in getting a mortgage is to do a budget on what you spend every month and what you can afford to pay back. It is important when budgeting to make sure you have some spare cash left over to spend on enjoying yourself otherwise you will be buying a prison not a home! • Step two is saving for a deposit the more you save and use as a deposit the less mortgage you will have to take out which means lower payments each month. The deposit can range from 10% - 40% of the value of the house you want, for example if you find a house worth £300,000 and you have 10% deposit (£30,000) you would have to borrow £270,000. However if you had 40% deposit you would only have to borrow £180,000. • The third step is to arrange a meeting with your mortgage provider or financial advisor.
Repayment mortgages • Repayment mortgages: this is where you arrange a secure loan from the mortgage lender for a fixed term e.g. 25 years or 35 years etc. You will then make repayments monthly to pay that loan back. Each payment is made up of the money you borrowed and interest. To begin with each monthly payment will consist of more interest and the money you borrowed reduces slowly. • There are different options for this type of mortgage: • Fixed-rate mortgages: This is where your interest rate is fixed for a period of time e.g. two or 3 years. So if the government decide to put the interest rates up then it would not affect you, your payments would stay the same. • Tracker mortgages: You pay an agreed percentage above the Bank of England’s base rate. As the base rate goes up and down, so will your mortgage repayments. • Interest-only mortgages: are another type of mortgage where your monthly repayments cover the interest only not the money you have borrowed. You will usually be required to have a long term investment fund put in place to pay back the original loan by an agreed date.
Activity You must now answer the questions on the worksheet called Mortgages. You have 10 minutes!
Answers What is a mortgage? Is a special type of loan for buying property where monthly payments are spread over a number of years. What age do you have to be to get a mortgage? 18 years old What are the first three steps to getting a mortgage? The first step in getting a mortgage is to do a budget on what you spend every month and what you can afford to pay back. It is important when budgeting to make sure you have some spare cash left over to spend on enjoying yourself otherwise you will be buying a prison not a home! Step two is saving for a deposit the more you save and use as a deposit the less mortgage you will have to take out which means lower payments each month. The deposit can range from 10% - 40% of the value of the house you want, for example if you find a house worth £300,000 and you have 10% deposit (£30,000) you would have to borrow £270,000. However if you had 40% deposit you would only have to borrow £180,000. The third step is to arrange a meeting with your mortgage provider or financial advisor. What is a fixed rate mortgage? Fixed-rate mortgages: This is where your interest rate is fixed for a period of time e.g. two or 3 years. So if the government decide to put the interest rates up then it would not affect you, your payments would stay the same. What are the one off payments you need to pay when you are getting your mortgage to buy a house? You can research this on the internet Survey fees, Legal costs (solicitor), Mortgage arrangement fee, Valuation fee, Stamp duty, Moving costs
Renting What is renting?
Answer Renting is when you do not own a property but you live somewhere on a regular basis and pay monthly payments to the owner for using the property. You can rent houses, flats, office space etc. You will still pay the monthly bills like electricity, gas etc. but instead of paying a mortgage you are paying to rent the property. The property is never yours. There is nothing wrong with renting it just depends on your circumstances. Some people prefer to rent rather than be tied into to a mortgage for 25/30 years. Or you may not have got a deposit and you may find it hard to get a mortgage so you decide to rent.
Activity On the worksheet called advantages and disadvantages to renting, you must fill in the table with as many advantages and disadvantages as you can think of. You have 5 minutes!
Advantages If something goes wrong with the property all you have to do is pick up the phone and ask the home owner to sort the issue out. You will not have to pay for house insurance that is up to the home owner. You can be in a renting contract for minimum of 6 months so if you wanted to move away you don’t have to worry about selling the property you just give your notice period to the home owner. Get the class to write down on a piece of paper what they think the disadvantages are to renting.
Disadvantages You don’t own your own property You are wasting money each month which could be going into your savings account for a deposit. Your contract is sometimes only for 6 months to a year so the owner could decide they don’t want you to sign a new contract after this period. The homeowners could put the rent up at any time. You may not be allowed pets, to put pictures on the wall, smoke etc. in the property.
Activity Now fill in the table on the worksheet called advantages and disadvantages to buying. Write down as many advantages and disadvantages as you can. You have 5 minutes!
Buying Disadvantages • You have to find a large deposit. • You have to pay the mortgage back over a minimum of 25 years. • If anything goes wrong with the property you are responsible for fixing it. • You could lose value in your house if the property market goes down. Advantages You own your own property You can add value to the property by changing it in some way e.g. extensions. After a few years you can sell the property and buy a bigger place. If you pay the monthly payments off each month you get good credit rating.
Plenary So now you know all about buying and renting what would you rather do when they are older, buy or rent? Would you do both sometime in the future? Which do you think is the better option? Have a class discuss about it. Explain your answers!
