A guide to Mortgages - Mortgage Guide
Choose the right mortgage and you'll save thousands.
A mortgage will help you buy the home of your dreams . Here is a mortgage guide for everything you need to know to find the right one for you.
What is a mortgage?
A mortgage is a loan from a bank or building society to help you buy your new home. You pay back the amount you have borrowed plus interest over a period of time, usually 25 or more years. The term can be less than 25 years but this can result in higher repayments.
The mortgage is secured against your property until you have paid it off in full. This means the bank could repossess your home if you fail to make your repayments.
You can apply for a mortgage either on your own or one or more people.
Interest only and repayment mortgages.
Most mortgages are on repayment. This means your monthly payments will go towards both the interest charged on your mortgage and clearing the outstanding balance left to pay. By the end of the mortgage term you will have paid off the full amount you borrowed including all interest charged.
Interest only mortgages are monthly repayments that only cover the interest owed. Your outstanding balance will not go down. At the end of the term you will need to pay off the full outstanding balance, so you will need to have saved up this amount separately or may have to sell the home to repay the amount borrowed.
How much does a mortgage cost?
The amount you have to pay each month depends on the mortgage deal you get and the cost of the property. Here are the costs of a mortgage briefly explained:
Interest
- The interest rate will affect how much you have to repay overall and what you pay each month.
- It is accrued across the lifetime of the mortgage and is charged as a percentage rate on the amount you owe.
Mortgage fees
- Product fees are charged for taking out the mortgage
- Application fees can be charged when you apply for a mortgage, whether you end up taking it out or not.
- Valuation fees may be charged by your lender for working out how much your property is worth.
- Telegraphic transfer fees are charged when the bank transfers the money they are lending to you (usually to your solicitor)
- Early repayments charges if you pay it off before the end of its term and exit fees are charged on some mortgages when you move to a new lender.
Once you have your mortgage, missing repayments will usually mean you will be charged a fee by your lender, pushing up the total amount you owe.
What about a deposit?
You will have to pay for part of the property upfront yourself, and this is called the deposit. You usually have to save this up yourself or it be gifted to you by a family member. You can not borrow a deposit.
It is shown as a percentage of the property's value, so if you bought a house for £250,000, a 10% deposit would come to £25,000.
Your mortgage lender will loan you the rest, which is called the loan to value (LTV). In the above example a 90% LTV mortgage would cover the remaining £225,000, which would be the amount you owe your mortgage provider.
Types of mortgages
There are lots different types of mortgages. Below are just a few but there are many more so its worth speaking to a mortgage advisor about your personal circumstances.
- First time buyer mortgages can help you buy a home with a small deposit including Help to Buy mortgages where further help can be obtained by the government,
- Self employed mortgages are for if you run your own business or have an income that is hard to prove to lenders.
- Buy to let mortgages let you purchase a property to rent out.
- Second mortgages let you purchase a property other than your main residence, like holiday homes or investment properties.
Fixed? Variable? Discounted?
Whats the difference?
- Variable mortgages can change their interest rate at any point, although they usually rise and fall roughly in line with the Bank of England base rate.
- Fixed rate mortgages guarantee that their interest rates will not change for a set time, usually between one and five years.
- Discount mortgages offer a rate set at around one or two percent less than the lender's standard variable rate. The rate will rise and fall with the lender's standard variable rate, and the discount will last for a set period of a year or more.
So how do I get a Mortgage?
- Save a deposit if you are buying your first home. You could use the equity in your property towards the deposit if you own your current home.
- Find a mortgage through a bank or use a mortgage broker.
- Get a mortgage in principle, which will let you know approximately how much you could borrow.
- Start looking a properties in you price range and put in an offer when you have found one
- If your offer is accepted, take out the mortgage and then you will be able to buy your new home. Don't forget you'll need a solicitor to help buy your new home.