A mortgage is a type of loan buyers use to purchase a property.
Mortgages can be obtained from banks, building societies and mortgage lenders. The amount they lend you falls down to your circumstances, credit score and the amount you can realistically afford to repay. Interest on the loan is usually charged and you will have an agreed time span (mortgage term) to repay the amount borrowed. It is important to understand that the interest rate can and will change over the duration of the loan, so do your research on your chosen lender.
When choosing a mortgage there’s several key things to consider;
1. How much can you afford to borrow and then repay on a monthly basis?
2. What’s the best repayment option for you?
3. How long should your mortgage term be?
4. What type of mortgage is most suitable for you?
Usually, lenders want to see that you can provide a deposit. However, that deposit may be as little as 5% of the property’s market value. If you can raise a 5% deposit, you will be looking at a mortgage with a 95% loan to value (LTV). Loan to value is the loan amount expressed as a percentage of the property value. For example, with 95% LTV on a £100,000 house, you would need a 5% deposit, i.e. £5,000, and your loan amount would be £95,000.
How much to borrow
The amount you are able to borrow is dependent on a number of factors, so you will need to consider the cost of moving, your monthly income and expenditure and your credit history.
Your Mortgage and Protection Consultant can help you to find the right number of years (term) over which to repay your mortgage. If you spread your mortgage over a longer-term, your monthly repayments will be lower. However, please note that the longer your mortgage term, the more interest you will have to pay the lender.
There are two main mortgage repayment options available to you: repayment and interest only. The availability of both will depend upon your circumstances. Please note that part repayment part interest-only mortgages may also be available; your Mortgage and Protection Consultant can discuss this with you.
Types of mortgage
You have several options, each of which has advantages and disadvantages.
- The same monthly payments for the initial period (usually 2, 3 or 5 years).
- After this period, the rate usually reverts to a variable rate.
- Easy to plan as exact costs known.
- Payments cannot increase during the initial fixed period.
- During the fixed period, payments cannot decrease and early repayment charges may apply.
- The rate will be driven largely by the economy and the market.
- The lender decides their current rate, which you pay – this does change.
- You may benefit from rate reductions and pay less each month.
- No early repayment charges during the term.
- Rates may increase and therefore you will pay more each month.
- Hard to budget