Buying a home is the biggest purchase you’re likely to make. Once you apply for a mortgage, make sure you know what you can expect to borrow. Figure out where to get a mortgage, the various forms of mortgages, and how the process works.
- What’s the mortgage?
- The investment – how large is it, how does a mortgage work?
- Different types of mortgages
What’s the mortgage?
A mortgage is a debt obtained and buy property or land.
Many continue for 25 years, but the duration may be shorter or longer.
The loan is ‘ secured ‘ against the value of your home until it is paid back.
When you can’t keep up with your bills, the landlord don reclaim (take back) the house and sell it to get their money back.
Using our Loan Affordability calculator to work out how much you can pay.
Don’t strain yourself as you think you’re going to struggle to keep the repayments running.
Believe about the operating costs of owning a property, such as household bills, council tax, insurance and maintenance.
The borrowers will want to see assurance of your income and expenditure, and if you have any debts.
We can ask for information on household bills, child care and personal expenses.
Borrowers want proof that you will be able to keep up your repayments if interest rates rise.
They may refuse to offer you a loan because we think you’re going to be able to afford it.
Where to get a mortgage
You can apply for a mortgage directly from a bank or a building company to choose from their range of products.
You can also use a mortgage broker or an independent financial advisor (IFA) who can compare different mortgages on the market.
As well as mortgages that are not offered directly to customers.
Some brokers look at ‘ whole market ‘ mortgages, while others look at products from a number of lenders.
They’re going to tell you all about this, and if they have any charges, when you first contact them.
It will almost certainly be best to take advice unless you are very experienced in financial matters in general, and mortgages in particular.
It’s sometimes possible to choose a mortgage without receiving advice – this is called a mortgage-only execution.
These are offered in limited circumstances
You’d expect to know: what type of mortgage you want, exactly what property you want to buy, how much you want to borrow and how long The type of interest and rate you want to borrow, from The lender will write to confirm that you haven’t received any advice and that the mortgage has not been assessed to see if it’s appropriate for you.
In some cases, you may need to confirm that you are aware of the consequences of taking out a mortgage without receiving advice, and that you are happy to go ahead.
If, for some reason, the mortgage later turns out to be unsuitable for you, it will be very difficult for you to make a complaint.
If you follow the execution-only route, the lender will still carry out detailed checks on the affordability of your finances and assess your ability to continue making repayments under certain circumstances.
Knowing different types of mortgages While considering a loan, don’t just rely on the interest rate and fees you will be paying. You also need to know what kind of mortgage you desire. Consult our guide to learn the pros and cons of different types of mortgages.
What are the different kinds of mortgages?
- Fixed Rate
- Loan Variable
- Rate Mortgage
- Standard Variable Rate (SVR)
- Discount Mortgage
- Tracking Mortgage
- Rate Mortgage Offset
- Mortgage Offset One more aspect
What are the different kinds of mortgages?
Use our Mortgage Liability Calculator to estimate how much you can borrow.
There are two main types of mortgages: fixed rates: interest charged will remain the same for a number of years, typically between two and five years.
Variable rate: The interest you pay may change.
Fixed Rate Mortgage The interest rate you pay will remain the same for the duration of the deal, no matter what happens to interest rates.
You will see them promoted as’ two-year repair’ or’ five-year fix,’ for example, along with the interest rate paid for that time.
Advantages Peace of mind that your monthly payments will remain the same, helping you to budget Disadvantages Fixed rate deals are usually slightly higher than variable rate mortgages If interest rates fall, you won’t benefit Watch out for Charges if you want to leave the deal early – you’re tied to the length of the fix.
At the end of the fixed period – you should look for a new mortgage deal two to three months before it ends, or you will be automatically moved to the standard variable rate of your lender, which is usually higher.
Variable Mortgage Rate With variable rate mortgages, the interest rate may change at any time.
Make sure you have some savings set aside so that you can afford to increase your payments if the rates rise.
Variable Rate Mortgage comes in various forms: Standard Variable Rate (SVR) This is the normal interest rate your mortgage lender charges homebuyers and it will last as long as your mortgage or until you enter into another mortgage deal.
Changes in interest rates may occur following an increase or decrease in the base rate set by the Bank of England.
Advantages Freedom – You may overpay or leave at any time Disadvantages Your rate may be changed at any time during the loan Discount Mortgage Discount This is a discount off the standard variable rate (SVR) of the lender and applies only for a certain period of time, usually two or three years.
But it’s paying to shop around. SVRs differ from lender to lender, so do not assume that the higher the discount, the lower the interest rate.
Example Two banks have discount rates: Bank A has a 2 per cent discount off SVR of 6 per cent (so you pay 4 per cent) Bank B has a 1.5 per cent discount off SVR of 5 per cent (so you pay 3.5 per cent) Although the discount is higher for Bank A, Bank B will be the cheaper option.
Advantages Cost – the rate starts at a lower price which keeps monthly repayments lower If the lender cuts his SVR, you pay less each month Disadvantages Budgeting – the lender is free to raise his SVR at any time If the Bank of England base rate rises, you will probably see the discount rate increase to Watch out for: Charges if you want to leave before the end of the discount period Tracker mortga.
So if the base rate increases by 0.5 per cent, your rate will increase by the same amount.
Typically they have a short life, typically two or five years, though some borrowers provide trackers that last for the duration of your lease, or until you find another sale.