Mortgages can be complicated; however, here at SoSmart Money we think that it's best to keep it simple.
That is why we have put together a basic guide to mortgages which covers the following topics:
A mortgage is a large loan for buying a property. Unlike personal loans that can be used to buy anything, a mortgage is strictly for buying the home of your dreams. A mortgage can be taken out to buy your main home, a holiday home or a home you plan to let out to others.
You can and you should not let this fact stop you from buying a property. There are mortgages available if you have adverse credit. However you have to remember that your choice of lender and type of mortgage will be limited. You will also usually have to pay a higher mortgage rate than if you had a 'good' credit record.
Firstly, you need to decide on whether you want a repayment or interest only mortgage. After that you need to get some impartial advice from a mortgage adviser on what specific type of mortgage suits you, how much you can borrow, over what period of time, etc.
We have teamed up with an FSA-regulated mortgage advisor that offer impartial advice using a range of mortgage products that are representative of the whole of the market.
Most mortgage lenders will loan you around 3 or 4 times your salary.
If you're buying with a partner you will usually get 2.5 or 3 times your joint income for the house of your dreams. Many lenders will work out how much to lend based on what you can realistically "afford" each month in repayments. That means they look at your disposable income; i.e. what is left after you have paid bills, credit cards, loans etc.
The mortgage calculator on ourr site allows you to work out your monthly mortgage payments.
Mortgages have traditionally been for 25 years but it's fairly common for them to be anywhere between 15 to 30 years now. Clearing your mortgage as quickly as possible means you will save yourself more money in the long term by paying less interest.
This of course depends on many factors such as what kind of mortgage it is, how much you want to borrow, over what period, are there any 'hidden charges', etc however as an idea we have given the below example:
Say, as an example, you want to purchase a property that is worth £150,000.
If you put down a 10% deposit, it will leave you with a mortgage of £135,000.
If you can secure a fixed rate mortgage of say 4.99%, you can expect to pay about £785 a month for a repayment mortgage and £560 for an interest-only mortgage. A 1% rate rise would add another £100 a month to the interest payment on this loan.
A deposit is often between 5% - 10% of the purchase price of the property but can be quite a bit more, particularly in the current more restricted mortgage market.
(I.e.£10,000 to £20,000 on a £200,000 property)
The bigger your deposit, often the better the mortgage deal.
Whilst there are thousands of different mortgages on offer from different lenders there are two main types of mortgages: repayment and interest only.
A repayment mortgage is where your monthly payments gradually pay off both the amount you owe, as well as the interest charged. If you make all of the mortgage payments, the loan is fully paid off by the end of the mortgage term.
An interest only mortgage is where your monthly payments cover only the interest on your mortgage. You need to pay separately into a savings or investment plan in order to build up a sum of money that can repay your whole mortgage at the end of the mortgage term. Visit our sub section for detailed infomation on all the different mortgage types.
Lenders e.g. Halifax, Woolwich, Santander etc. do not give away free money, so that means they will charge you interest on the money you borrow!
All lenders have their own rate and this goes up and down, approximately in line with the Bank of England's base rate. Naturally, the higher the mortgage rate, the higher the amount of interest will be that you have to pay.
There are various kinds of mortgage types on offer e.g. you can get fixed or discounted mortgage rate rather than a standard rate. This might save you money at the start but you may also be committed to staying with the mortgage lender once the deal ends.
You can get expert help finding a mortgage. This service, at no charge to you, is provided by an FSA-qualified mortgage adviser, who can offer unbiased advice on the whole UK mortgage marketplace.
Have a look at "Getting Your First Mortgage" to gain a better understanding of what to expect when getting a mortgage.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.