The Difference Between Mortgage Tax and Property Tax

The mortgage tax and property tax on first inspection often look like one and the same thing. However, these two types of taxes are totally separate entities. The best way to establish the difference between the two is by looking at how the taxes work. It is important to understand that these are taxes applied on properties and are often in operation in most states in the United States.

The first difference of these two entities is the definition of each. A mortgage tax is a deduction imposed on an individual’s taxable income. The tax is deducted according to the amount the individual has paid in interest on a mortgage for the past year. In the case of property tax, it is defined as a real property tax. This kind of deduction is often based on the value of the property.

The tax deducted in both cases is used in various ways. In the case of the property tax, it is this money that is used by counties, cities, towns, schools and special districts to fund these different sectors. The money raised from the property deduction goes a long way to pay for police and fire protection.

Additionally, it is used to fund schools and also major services offered by the municipal to residents.
The money obtained from home loan taxes can be claimed by individual home owners. In this case, the deducted amount can result in tax savings. The advantage of this kind of tax is that an individual can reduce the amount of their income that is open to taxation. To claim this saved taxed amount the individual must first fill in an itemized deduction form. It is the only way that the person will receive all the benefits that come with a mortgage tax. When an individual claims this tax it becomes known as a home-equity debt. Like all types of home loans, the individual has to qualify to be able to receive the claim.

In both cases, the mortgage tax and property tax are subject to certain policies. It is these guidelines that determine the amount of taxes imposed on the home or property. The tax is determined by the value of an individual’s property at the time of the assessment. It is also established by the current rate of mortgage of when claiming the tax.

The policy that governs how much tax is imposed on a property under the property tax is based on the taxable assessment of the asset. It is also determined by the rate currently in place in the specific jurisdiction the home is in. The tax is often made on the home and other structures attached to it. These other structures may include vacant land, office buildings, farms, apartment and mobile homes.

Even with all these differences it is still possible to find similarities between mortgage tax and property tax. There is no tax that is imposed without an assessment being done. The assessment will be done on the specific properties and structures placed under the tax bracket. Additionally, the tax deducted has to be in accordance to the value of the asset at the time of the evaluation.

Using a mortgage calculator

If you have decided to take the plunge and enter into the world of the homeowner, then getting an indication of just how much it is all going to cost you per month may be a very sensible idea. This does not have to be difficult, as you can easily work this figure out using a mortgage calculator.

There are calculators of this type and in various forms, readily available on the internet.

Borrowing

If you are a first time buyer though, perhaps the first piece of information you’d want from a mortgage calculation is how much it may be possible for someone on your income level to borrow.

This could be as simple as inputting your income and pressing send. Armed with that piece of information, you can then see how much this could cost you per month.

In their simplest form, mortgage calculation aids can help you come up with a repayment figure for the mortgage that you have in mind.

You input the amount of the mortgage, the length of time you want the mortgage to run, and the interest rate for that particular mortgage.

Other relevant information at this stage would be the type of mortgage you’re looking for.

These factors are all typically explained on the relevant internet site.

Repayment

• with a repayment mortgage, each monthly payment is used to pay a portion of the capital and the interest.

Interest only

• with an interest only mortgage, your repayment only goes towards the interest and there is typically a separate endowment or other investment policy which matures at the end of the mortgage term to cover the capital repayment amount.

When using mortgage calculation aids for an interest only mortgage estimate, don’t forget to add in an appropriate sum for monthly premium for the investment policy that will pay off the capital part of the loan.

More complicated examples

Using mortgage calculators may also be able to give you answers to other more complicated mortgage questions. For example, what would the effect on your monthly repayment be if you were to:

 take a repayment holiday;
 make additional lump sum payments;
 etc.

If you are looking for a buy to let mortgage, then some mortgage calculators may also be able to provide you with a realistic rental figure for your property based on the mortgage you have and your costs etc.

These days there’s no excuse for being in the dark about mortgage repayments and using a mortgage calculator in advance can help you understand your financial commitments and avoid them becoming financial liabilities!

Mortgages

Mortgages are a form of loan taken our for the purpose of purchasing a property.

Typical characteristics

A typical mortgage is:

• advanced up to a maximum percentage of the property value (so, if it’s a £100,000 property and the lender only advances up to 80% then the maximum mortgage you’ll obtain is £80,000);
• secured against title to the property – in other words, if you don’t keep up the repayments your lender may force you to sell the house so as to recover their loan plus charges;
• calculated based upon your income and ability to pay – so in the above example you would not be able to borrow £80,000 even if it was 80% unless you had income sufficient to meet the monthly repayments;
• repaid over a number of years, depending upon your requirements and your age/earnings.

Qualifications and risk

Although not necessarily always the case, you may have some trouble obtaining a mortgage if:

• you are unable to raise a deposit equivalent to perhaps 5-20% of the purchase price depending upon the lenders’ policies at the time you apply;
• are looking at a property that is defined as high-risk (e.g. in an ex-mining area known for subsidence);
• do not have a good professional building survey report to support your loan application;
• are not in recognisable employment and receiving a regular and predictable income.

Mortgages were at one time almost exclusively provided by banks and building societies but many financial services companies now offer them.

What are remortgages exactly?

Remortgaging can mean different things to different people. Typically though it is about replacing one mortgage with another:
• if you need to raise capital and own a property, then remortgaging may be an option for you;
• where you simply want to switch to a different deal in a bid to save money on your monthly repayments.

Here we look at remortgaging in order raise capital.

Equity

If your house is worth more than you owe on it (typically a case of your mortgage being less that the property’s market value) then you have what’s called equity or positive equity in it.

So, if you have a mortgage debt of say £80,000 and your house is worth £130,000 then you have equity of £50,000 (providing you have no other credit, such as a secured loan, attached to your home).

You may be able, therefore, to borrow a sum of money and use your property as security for it. That’s called remortgaging.

Theoretically you may be able to borrow up to the £50,000 equity but as lenders typically seek to retain a margin of error, you may find that you can borrow up a percentage of it for remortgages.

Remember though – if you’re unable to repay that loan then your property may be at risk.

Negative equity

This describes a situation where the reverse is true.

Let’s imagine a hopefully unlikely situation where you’ve a £100,000 mortgage on your property and its market value has declined to £90,000.

That’s called negative equity – and in that situation you may find it difficult or even impossible to secure any loan against your property.

In such a situation, remortgages may simply not be available to you and you may need to find an alternative way of raising your required capital.

The remortgage

Why would you wish to remortgage?

This term may sometimes be used to mean a number of very different things. Most correctly, it should be used to describe the process of switching your mortgage from one provider to another or, possibly, to another mortgage product.

There could be many reasons for you wishing to do so including finding a more attractively-priced mortgage elsewhere, wishing to change the term of your existing mortgage to stretch it over a longer period or simply to raise a little capital.

This is all typically possible but you may need to do your sums.

That’s because if you redeem your mortgage early, the original mortgage provider may have the right to make certain charges.

In terms of some aspects of this, particularly if you wish to somehow take capital out of the process, you may need to take into account the value of your property.

It typically works like this:

• if you have a property, it has a theoretical market value (its actual sale value may be very different);
• if you have an outstanding mortgage on the property, then the market value minus the outstanding mortgage is called the equity;
• if you have a large positive equity (i.e. your house is worth a lot more than you owe on it) you may be able to obtain a flexible remortgage that includes equity release;
• if you have negative equity, that basically means that you owe more on your property than it’s theoretically worth – as a result you may find it impossible to make changes that free up capital.

At one time in the UK, remortgages were uncommon and even frowned upon.

Those days are now long gone and many providers have products and services that may help.

In fact, your existing current mortgage provider may be very willing to discuss the options with you directly.

The remortgage, when used sensibly and taking into account your total financial position, may be a very useful facility to have at your disposal. It might be worth looking into in a little more detail.

Top nine tips on getting mortgages

Getting mortgages is (thankfully) not something that homeowners have to do every day. If you are looking for a new home loan, you may wish to bear the following nine tips in mind.

1. Know your credit score. In challenging economic times, you may find that lenders may have tightened up their lending criteria for granting mortgages. Accordingly, you may wish to check that your credit history file is all correct and up to date, so that you have an idea about where you stand when applying for a new home loan.
2. Look beyond the newspaper or internet rate. Interest rates for home loans that are stated in marketing materials may be for guidance purposes only. Do not assume that those are the rates that are available for you, as the lender may tailor the rates they offer according to your individual financial circumstances.
3. Decide on the term that you want to borrow for. How quickly do you want to pay off your mortgage? If you want to pay off your mortgage in a short period of time, you may find that the repayments may be higher than they would be had you spread the loan over a longer period of time. However, a longer term typically means that you pay more interest over all, which you may wish to bear in mind for the purposes of comparison.
4. Know how much it may cost. You can find mortgage calculators online that can help you get a feel for how much you may be able to afford and how much repayments will be etc.
5. Decide between repayment or interest only. Paying only the interest on a mortgage may sound great – until you consider that the balance is still outstanding that needs to be repaid at some point. Repayment mortgages may mean that you can chip away at the outstanding capital gradually as you go as well as pay the interest, whereas interest only home loans mean that you must not forget to make some kind of provision to repay the capital!
6. Swot up on interest rates. Do you know your standard variables from your capped trackers? Looking into the different types of mortgages available may be a worthwhile exercise.
7. Are you planning to get a fixed rate mortgage? If so, what do you plan to do after that fixed term has ended? Think about whether you plan to remortgage or whether you could continue to pay the mortgage on the variable rate the loan would typically revert to.
8. Consider the worst case scenario about interest rates. On a similar vein to the top tip above and depending on the mortgage type you are considering, you may wish to think about whether you could afford your mortgage if rates went up considerably.
9. Finally, are you looking at mortgages that have penalties for early redemption? If so you may wish to consider what it would cost you to remortgage to another deal.

Guide to making a mortgage application

No matter what sort of mortgage you are looking for (whether you are a first time buyer; someone who already has a mortgage; or someone looking to remortgage), how you go about your mortgage application is very important. Some people may want to do their homework first and go direct to a lender, while others may want to use a mortgage broker.

So what is the difference?
Going direct will typically save you mortgage brokers’ fees, but unless you are 100% confident that your circumstances meet your potential mortgage provider’s lending criteria, then you may wish to bite the bullet and use a mortgage broker.

Mortgage brokers
Each bank / lending institution typically has its own criteria for approving a mortgage. As an example:

• some will be happy to lend to a self employed person while others may only want to lend to someone who is not self employed and who is full time employment with someone else;
• some lenders are sympathetic to those who may have a less than perfect credit history (this is your financial record that details all your financial goings on for the last six years including whether you have missed any payments) while others will only accept those people with an credit history;
• Young, first time buyers who may not have built up a credit history may also find that some lenders will not approve them for a mortgage.

A good, experienced and reputable mortgage broker may typically know which lender would be most likely to accept you for a mortgage. They may also sometimes have access to online deals not available on the High Street.

You may think: “So what? I’ll keep submitting a mortgage application to different lenders until I am accepted”.
The problem with this is that each time you apply for a mortgage, a credit history check is done and is recorded on your file. If you have several checks done by different organisations in a short period of time (which would typically happen if you applied to one lender after another), a potential lender may look at your file and think:”Why has this person been declined a mortgage by the X Bank? If they have declined them, what is wrong with them?” Plus, multiple or a quick succession of mortgage applications can often smack of financial desperation – again, another potential turn off for lenders.

Going with a broker may mean you can utilise their experience and that you may have a better chance of being accepted for a mortgage. A broker will also do all the chasing of the lender on your behalf, meaning a little less stress at a difficult time.

Of course, whether you decide to submit your own mortgage application yourself or via a broker is up to you. But if you go down the latter route, ask around among friends and family as to whether they can recommend a good mortgage broker. And before you sign up with a broker, check out what any broker fees may be in connection with your mortgage application.

How to clean up your credit file when applying for a mortgage

If you are thinking about applying for a mortgage, it makes sense to be sure that your credit profile is as good as it can be. By following the tips we have put together here, you can be sure that there will be no surprises for you or your lender.

• Check your credit file. This is something you should do regularly anyway, but it is even more important before you apply for a mortgage. For a very small fee, you can obtain copies of your file from the credit reference agencies, Equifax, Experian and Callcredit. This will let you check that the details they hold are up to date and correct. If any details are wrong, such as showing that you have missed a payment when you haven’t, ask for the file to be corrected.
• Set up direct debits. If you have regular outgoings, such as mortgage payments or utility bills, set up direct debits to pay them. Not only will this make it easier for you to manage your money and reduce the chances of you missing any payments, it lets lenders see that you are organised and committed when it comes to paying bills on time.
• Settle outstanding debts. If you have missed any payments for anything, get the account up to date as soon as possible. If your credit file shows that you haven’t stuck to an agreement, your credit score could well be reduced as the lender may see you as a higher risk.
• Get on the electoral register. Make sure you are properly registered at your current address, as all lenders have to verify your identity in order to comply with money laundering regulations and prevent identity theft. If you aren’t on the electoral role when you apply for a mortgage, the lender may reduce your credit score or even reject your application altogether.
• Don’t make lots of applications. In the months or weeks before you apply for your mortgage, make sure that you don’t apply for lots of other things, like loans or credit cards, which require credit checks. Every time you are credit scored it is recorded on your file, and lenders may see a lot of credit checks in a short time as a sign of someone who might be struggling to manage their money. If you see credit checks on your file that you don’t remember, ask for them to be removed.
• Check any related accounts. Your own credit file might be clean, but it is important that your partner or anyone else who is applying with you checks their file in the same way as any adverse information will also affect your application.

Understanding mortgages - how to find a good deal

With so many different types of mortgages to choose from and a wide variety of lenders offering these products, it’s little wonder that so many of us find it hard to get a good deal. It makes sense to do this however. The money you pay every month to service your mortgage will almost definitely be the largest payment you have to make. Getting a good deal could simply give you lower monthly repayments and the added bonus of knowing that you’ll pay back as little interest as possible.

So, what steps might you take to make things easier? The first step you may want to consider is what kind of deal might suit you best. Mortgages all come with the same aim — you borrow money to buy a property and then repay what you borrow and the interest charged by your lender over a period of years. But, not all products here work in the same way and there are many different types of deals to choose from.

You might want to therefore do some research first of all into the options on offer. The more you know here, the better. Even a quick visit to a lender’s website, a financial advice portal or an online mortgage comparison site should be enough to show you the basics of the deals you may want to consider.

Next, you might want to think about where you go to get your deal. A simple solution may simply be to pop into your local bank or building society to see what they have on offer. Many people, however, prefer to dig a little deeper to see what is on offer in the sector as a whole. Finding mortgages is in a way just like shopping for anything else — if you shop around then it may be much easier to find the best deal to suit you.

There are various ways of doing this. These include:

• The ‘Do It Yourself’ approach: Here you might simply do your own research by approaching lenders to gather information on rates and deals either from branches or from their websites.
• Online comparison sites: Many people like to do initial research here by looking at financial comparison sites. You might, for example, use a site to get a quick and simple snapshot of available rates and deals without having to do the work for yourself.
• Mortgage specialists: As an alternative you may prefer to use the services of a specialist who can help you find deals and rates across various lenders in the sector.

Mortgages may all work in much the same way but they are not always equal. For many of us the main aim here is to get an affordable monthly repayment that suits our circumstances and that keeps our interest costs as low as possible. Like many others before you, therefore, you may well find that shopping around before you sign up for a deal will make the best sense.

Six Tips for First Time Mortgage Buyers

Getting onto the property ladder for the first time can be a daunting experience – not least due to the massive amount of information out there when it comes to mortgages. How do you know which one to choose? What if you make a mistake? After all, this is a very big decision.

However, help is at hand. Below are six tips on how best to approach the mortgage question if you’re a first time buyer.

1. Think about what you need from a mortgage.
Believe it or not, mortgages are not just a one-way street: you need to find a system of repayments that works for you. If you don’t, you may find yourself struggling to keep up financially, which can cause unnecessary stress and worry. Similarly, if you get a mortgage that doesn’t provide what you need, you may find yourself settling for a property that isn’t right for you, which can cause problems further down the line. The key is balance – a little forethought goes a long way.

2. Don’t overreach yourself.
If you’re a first-time buyer who’s previously been living at home with your parents, you’ll need to take into account additional expenses (bills, rates, council tax, etc) when you’re budgeting how much you can afford to repay on your mortgage. Similarly, you’ll need to make sure you can afford the repayments even if interest rates rise. If you forget this, you could find yourself in a serious financial pickle later on.

3. Don’t be afraid to ask for help.
The mortgage market is confusing, especially if you’ve never done it before. Most providers offer the services of a mortgage advisor, who’s specially trained to help you work out exactly what service would best fit your circumstances.

4. Don’t just go for the first mortgage that comes along.
It can be tempting to settle for the first mortgage that seems to meet your criteria, but this is rarely the right one for you. Of the hundreds of mortgage packages out there, what are the odds that the first one you settle on is going to be a perfect fit? Pretty slim. Take a little bit more time to scout around the markets and see what’s out there. You could save yourself a substantial amount of money, and even if you don’t, you’ll have the satisfaction of knowing that you have the best possible package for you.

5. Read the small print.
No one likes doing it, but it’s important to know exactly what you’re getting yourself into – after all, a mortgage is likely to be one of the biggest set of repayments you ever find yourself making.

6. Try not to worry.
Moving house is stressful enough as it is. There’s enough support out there to make sure you don’t have to struggle unnecessarily with the question of your mortgage, and (while it definitely needs to get sorted) it doesn’t have to be the minefield that many people make it. Congratulate yourself for getting on the property ladder, and don’t forget to enjoy your new home.

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