For most people, buying an overseas property is a dream. However, with all the intricacies and complicated procedures with overseas banks, developers and solicitors, a lot of people get discouraged with the concept. However, the overseas property mortgage in the UK has undergone a sudden surge in the recent years.

This can be attributed to the growing number of people wanting to buy properties abroad for reasons of settlement or property investment and actually do something to achieve it. The majority of these people are retirees seeking a more peaceful abode, while at the same time enjoying tax benefits.

Overseas Investment Mortgages

A good number are simple investors who have seen how promising overseas investments are fast becoming. The strength of the pound is a major contributor to this improving trend. Also, the mortgage market both in the UK and in overseas banks has also become more flexible. If you are one of those seeking to buy properties overseas, you will probably want some mortgage to finance your investment.

In terms of getting a mortgage, you will be faced with two very common choices: getting an overseas mortgage or settling for a local mortgage in your local UK bank.

An overseas mortgage is available in most countries with an established overseas property market. This includes most of Europe (Spain, France, Switzerland, and Italy) and the United States of America. Relatively new to the industry are Greece, Poland, Bulgaria, Cyprus and Turkey, among many others.

Similarities Between Overseas and UK Mortgages Overseas property mortgages are much like your ordinary mortgage that you get from any UK bank. You are taking out a loan that is secured against your own property. You have to apply for a loan, wherein you need to submit necessary documents to prove your income. In both cases, your documents and finances will be reviewed, and your mortgage will be approved if everything looks seamless. The entire procedure for getting an overseas property mortgage is very similar as well.

Differences Between Overseas and UK Mortgages

There are major differences that can be seen between getting a UK mortgage and an overseas loan. It is important to note that the very nature of the market abroad means that everything about it works quite differently from the normal and typical approach that the UK market has adopted. For example, many lenders in other countries in Europe generally do not offer mortgages based on interest only or on the concept of buy-to-let.

They base the mortgage amount on your actual earnings rather than the potential rate you may receive. Consequently, the income multiplier that is all so common in the UK is not typically used in banks abroad. Instead, the affordability model is predominant. This model in turn, relies on the debt-to-income ratio that you have. You need to prove that no more than 40% or less of your income goes into paying debts and mortgages (including the one you are applying for).

By far the most obvious distinguishing difference between a UK-based ! and an overseas mortgage is the currency that the mortgage is to be denominated in. So if you buy a property and get a mortgage, you will be earning in sterling pounds but you will have to pay your mortgage in a foreign currency (USD, euros, and so on).

Advantages of an Overseas Mortgage

Getting an overseas mortgage has considerable advantages. Foreign banks and lenders have become very flexible when it comes to lending to UK buyers. This is largely part of their strategy to draw in more investors and property buyers. As if that was not enough, interest rates in the Euro zone for example are sometimes lower than rates in the UK.

Overseas mortgages are effectively back-supported by the foreign property market. So if you buy a property in Spain on a Euro mortgage, your interest rates will likely be based around the rates in the Euro zone as set by the European Central Bank. Today, most of these rates are less than those offered in the UK. Considering this and depending on the amount of loan, you may have a big difference in your monthly amortization and repayment.

Disadvantages of an Overseas Mortgage

The main disadvantage that can be discouraging about overseas mortgages comes from the fact that it uses another currency. This adds a relatively thick layer of risk into your investment. With this set-up, you earn in sterling pounds and pay in another currency. The sterling pound equivalent of your debt in another foreign currency will surely fluctuate with time as the exchange rates go up and down. If you are unlucky, and the rates move against you, the sterling equivalent may become so low that you actually end up with so much more debt than you originally had.

Another disadvantage to be pointed out with getting an overseas mortgage is the physical and communication barrier that exists. If you buy a property in Cyprus, for example, you would need to visit the country at least once to arrange your paperwork or to personally attend to matters regarding your mortgage. (You can ask a lawyer or solicitor, but nothing matches being fully aware.) Also, in countries where only few people can speak good English, communication will prove to be difficult.

There is definitely no room for miscommunication in mortgage application and processing, either oral or written. You will need to demand all transactions and documents be written in English. Which one is better? One can not say that getting a UK mortgage is better than getting an overseas mortgage. What is good for you may not be good for another. While UK based mortgages are generally easier to proceed to (considering how used you are with the system), the rates can be very slightly higher.

On the other hand, overseas mortgages may prove lower in terms of interest rates, but the additional procedures, permissions, and other complicated systems may take more effort, time and money on your part. The best thing to do is to consult an independent specialist who can offer you objective advice on your options considering your current circumstances. Remember that all decisions about investing abroad should be informed and wise, and more importantly, realistic.

If you are looking to buy your own home you need to get a mortgage to finance the deal. A mortgage is a type of loan that is usually spread over 25 years, although shorter and longer term mortgages are available. This loan then is repaid in monthly instalments which are arranged by whoever a person takes their mortgage out with. The house is yours as soon as you have your mortgage in place, however once your final instalment has been paid you will then get the deeds to your house. This means that you legally own the house outright.

Why are there so many types of mortgages?

There are various types of mortgages such as repayment, interest only, endowments and bad credit mortgages. Depending on your circumstances you will get a mortgage to suit yourself. There is no right or wrong mortgage and what is good for one person is bad for another, it is down to the individual to decide what is the best for them.

Different types of mortgages

There are many different kinds of mortgages and here are some of them on the market..

• 100% mortgage – these are mortgages where the lender gives the borrower the entire amount of the house, this is good if you have no money to put down. As well as 100% mortgages there are also 75%, 80% and 90% ones. The plus points of a 100% mortgage is that you don’t need to provide a deposit, however as you are borrowing 100% of the cost of the house you may find that the repayment term is longer and the payments are higher.

• Capped – this is where the monthly mortgage amount is capped at a certain price. If the interest goes above this price you will still only pay the capped amount, and if it falls you pay less. A capped mortgage is a very good if you want to know exactly how much you will be paying for your mortgage each month. However, there are not many lenders who will offer this type of mortgage.

• Endowment mortgages – this type of mortgage pays off the interest on the loan and is supposed to pay out a lump sum at the end of the loan period which should be enough to pay off the outstanding balance. Unfortunately this rarely happens and as a result these are not very popular today.

• Repayment mortgages – these are one of the most popular kinds of mortgage. With a repayment mortgage the interest and capital is paid off with a person’s monthly mortgage payments. This means that at the end of the loan the house being mortgaged will belong to the person who has taken out the mortgage. Repayment mortgages are ideal if you want to pay off your mortgage in full within a given timescale. Payments on these however can be higher than other mortgages.

• Bad credit, or sub prime mortgages – if a person has a bad credit score such mortgages may be their only option. Sub prime mortgages are becoming more commonplace today as the number of people with a bad credit score is increasing. Plus points for bad credit or sub prime mortgages are that they enable people who may have had a difficult time financially get on the property ladder. As a result though the payments will be high and so will the interest rate as borrowers are classed as being a risk. If the payments are made on time it is possible after a while to switch to a better mortgage.

With so many types of mortgages available it really is wise to do as much research into them as possible before opting for any particular one.

With the new mortgage bill that became effective on March 2007, banks in Turkey started to ofer a variety of mortgage products to their customers, tailored to each individual’s needs. These products and the rates differ widely from bank to bank when you include loan duration, down payment, commission fees, prepayment options and fees etc. All of these variables make decision making much more confusing to the customer. In addition, when you add foreign currency based lending, different closing costs for each bank, expertise fees, etc, choosing the best mortgage product suitable for the customer turns into a multivariate optimization problem. Therefore, the role of the mortgage broker becomes critical. To better assist his clients and find the best mortgage product and the rate, a broker must have many years of experience in their fields, in finance, and in real estate business. In addition, it is vital that a mortgage broker must be equipped with the top of the line financial calculators and mortgage software, and access to up-to-date rates and products offered by banks.

Mortgage types being offered in Turkey can be classified as follows:

1. Fixed Rate Mortgages:

This is the most common mortgage type offered and given by all of the banks. The loan duration and the monthly payments are fixed and thus do not change through out the life of the mortgage. The borrower can payoff the entire loan with a prepayment option, however there is an early closing fee, which could be up to 2% of the loan amount.

2. Variable Rate Mortgages:

This type of mortgage is based on a variable rate specified by the bank and the federal bank and changes with the rate changes in the markets. Borrowers should pay attention to setting a ceiling rate when negotiating with the bank so that when the rates change their payments do not go above a certain rate. The early closing fee that exists in fixed rate mortgage does not exist in this type of mortgage.

3. All Inclusive Mortgage:

If the borrower wants to include all the fees associated with the purchase of his home and the mortgage in the mortgage, this type of mortgage would be the most ideal one. These fees are are realtor commision, life and porperty insurance premiums, disaster insurance, moving fees, closing fees, expertise fees, etc. The amoun of these fees depend on the property and the lender. However, all of these fees could be included in the mortgage and be bundled as the mortgage package.

4. Discounted Commision based Mortgage:

If the borrower is interested in low monthly payments, he/she then can choose to pay a commision up front which consists of a percentage of the interest that needs to be paid. After subtracting this amount from the loan, the monthly payments would be lower. These types of mortgages have higher closing fees than other types, however. The early closing fee aplies to this mortgage as well.

5. Mortgage with payments specified at different months:

If the borrower is interested in making payments on only certain months, then this type of mortgage would be the most ideal one.

6. Zero Down Mortgage:

For those who has another property, this property can be used as a collateral to finance the purchase of the next property. If the other property has a higher value, then the collateral could cover the entire mortgage of the new house, thus making it a zero down mortgage payment. One thing that the borrowers should pay attention to is that most banks give mortgages up to 80% of the value of the property.

7. Foreign Currency Indexed Mortgage:

In addition to mortgages given in YTL (New Turkish Lira) currency, banks started to give out mortgage loans in other currencies as well. Some of these currencies are USD, EUR, GBP, CHF, and JPY. These types of foreign currency indexed mortgages can be obtained both as fixed rate and variable rate mortgages.

8. Refinance Mortgage:

The refinance option is now available as well. In case borrowers are interested in refinancing their mortgages with lower interest rates, they can change the mortgage either through the bank that they obtained the mortgage of through any other lender. The only caviat in applying for refinance in Turkey is that if your mortgage was applied prior to March 6th 2007, there will not be an early closing fee. However, if it started after that date, then there will be an early closing or early prepayment fee applied which could be up to 2% of the loan amount. The borrower also needs to pay for all associated fees related to the new mortgage.

9. Home Equity or Personal Loan Mortgage:

If the borrower is in need of additional finances, he/she can choose to get a loan by using his/her property as a collateral. This loan could be applied to home improvement as well as any other personal need. They are usually given at a higher interest rate than other types of loans but less than regular personal loans.

100% Mortgage – This is when you borrow the full property value from a mortgage broker. This type of mortgage requires no deposit or down payment, and is therefore popular with first-time buyers. However, because of the credit crunch, 100% mortgages are hard to come by.

Adverse (or bad) Credit Mortgages – These are, as the name suggests, available to people with a low, or nonexistent, credit score. These are increasingly hard to come by, and usually have a very high interest rate attached. It’s better to rent and work on improving your credit score before applying for a mortgage. They are also known as sub-prime mortgages.

Base Rate Tracker – Interest rates on all mortgages fluctuate, but a Tracker mortgage will vary depending on the base rate set by the Bank of England. For example; if the deal you find offers base rate plus 0.75% for life, you will always pay exactly 0.75% over the base rate, whatever it is. The advantage of this is that if the base rate goes down, so do your repayments, and quicker than with a standard variable mortgage (covered below).

Capped Rate Mortgage – Another rare deal, the capped mortgage guarantees that you will not pay more than a pre-determined amount of interest on your repayments over a set period of time, no matter how much they go up. The admin fees on this type of mortgage are usually higher than on more standard deals, but there is the advantage of knowing, at least for a few years, that your payments won’t rise above a certain level.

Current Account Mortgages – Relatively new on the mortgage market, this type of mortgage, often called a combined mortgage, works like a bank account. You get a fully functioning bank account with direct debit facilities, chequebook and statements, and your earnings are paid into this account. The amount of the mortgage is also paid into this account, and it works like a big overdraft – you can borrow money from it to pay for holidays etc, but this theoretically gets repaid as your wages are paid in. the temptation is to borrow a little too much when faced with such a large amount of cash, so this is only really good for those who can manage their money well!

Divorced Mortgages – Some lenders recognise that a couple in the midst of divorce, or a newly divorced homeowner, may need special assistance. Therefore, certain mortgages come with a fixed interest rate for up to 5 years, with an interest free period for the first few months. For the new divorcees buying a home, alimony payments can be calculated into the income when determining a mortgage limit. These mortgages are often 100% deals, and are only offered to divorcees.

Endowment Mortgage – These mortgages are linked to the Stock Market. Often called an ‘interest-only’ mortgage, your monthly repayments only cover the interest due; the idea being that your investments will do well enough to pay off the whole capital at the end of the term. Of course, if your investments fail to make you money, you could be faced with a huge debt at the end of the term.

Fixed Rate Mortgage – Like all mortgages, this has good and bad points. You get a fixed monthly payment amount for a set term – usually between 1 and 5 years – and during this time you are guaranteed to pay that amount no matter what happens to interest rates. It’s good because you know exactly what you’ll be paying for that term but at the end, you might be in for a nasty shock if rates have risen substantially. In addition, if rates drop below the rate you’re paying during your fixed term, you’ll be paying more than you would on a different type of mortgage.

Flexible Mortgage – This type of mortgage deal has massive benefits as it allows you to vary your mortgage payment amounts, under- or over-pay as needed, and even miss payments altogether if you need cash for a holiday or Christmas. Potentially you could save thousands in interest if you pay off this type of mortgage early, as there are no repayment penalties as with other deals. But again, you need to be responsible with this as the interest will keep mounting up during a payment holiday.

Guarantor Mortgages – A guarantor is a person who acts as a kind of financial backup for a borrower. In the case of mortgages, the guarantor would be responsible for repayments should the borrower default. It’s a huge responsibility which involves a lot of trust on both sides, but for a first-time buyer it can be a good solution to a first mortgage. A guarantor needs to prove that they could afford your repayments as well as their own commitments in the event of a default. Most lenders will look favourably on an applicant with a guarantor, so it’s worth securing one even if you don’t foresee any problems.

This concludes part one of the mortgages guide. Part two will cover more mortgages such as offset mortgages and the classic repayment mortgage.