Let's find the right mortgage for you
Moving or remortgaging can be a stressful time, whether you're buying a new house or refinancing your current mortgage
That’s why it’s essential to have an expert mortgage adviser by your side to guide you through the process and find the best deal to suit your personal circumstances.
How Much Can I Afford Borrow?
The first rule of taking out a mortgage is to only borrow what you can comfortably afford to repay each month otherwise you could find yourself overstretched and end up losing your home. Take into consideration all the other costs involved in home ownership such as utility bills, council tax, home insurance and so on.
Upon application for a mortgage, all lenders will want to see proof of your income and expenditure. Anything that does not add up will be queried so make sure you have your facts and figures straight. If you have any debts, you will need to show them the exact amount you owe and how much you repay every month. Everything you declare will need to be backed up by statements.
Lenders might also ask how much you spend on household bills, child maintenance and personal expenses each month, right down to toiletries, petrol and going out. This is because lenders have a duty of care to make sure you are able to keep up repayments if interest rates rise or you face a change of circumstances. They will refuse to offer you a mortgage if they fear you will not be able to afford it.
How Much Deposit Do I Need?
The amount you are able to pay towards a deposit is worked out as a percentage of the amount you are paying for the property. The biggest mortgages you can get are 95% mortgages which means you would need at the very least, a deposit of 5% of the total value. However, because your mortgage is a loan, you will be paying interest on it so this is something to bear in mind.
If you want the best deal with the lowest interest rates you need to pay a larger deposit. For instance, a 20% deposit will usually get you a mortgage with a lower interest than if you had a 5% deposit.
Loan to value, or LTV, is the portion of your home you own outright, compared to the amount that paid for with a mortgage.
Where Can I Get A Mortgage?
It is possible to apply for a mortgage directly from a bank or building society. Most of them have several products to choose from. Some people go through a mortgage broker or an independent financial adviser (IFA) who will all have up to date knowledge on the most up to date and best value products available. Some brokers are open to offering mortgages from the ‘whole market’ while others limit themselves to products from particular lenders. Ask them about this, and their charges, when you first make contact with them. Also remember, every lender has their own criteria with which it decides whether it wants to lend to you.
Lenders and IFAs must offer advice when recommending a mortgage and they must assess the repayments you can comfortably afford alongside your existing debt repayments and day-to-day spending. This is the best way to make sure you acquire a mortgage that best suits your needs.
Unless you are well versed in financial matters, it is advisable to take advice when taking out a mortgage. If you want to take out a mortgage without doing so it might be possible to take out an execution-only mortgage. These are offered under limited circumstances.
Now is the time to check your credit report because the potential lenders will want to see it. Work on any discrepancies as soon as possible to maximise your appeal to lenders.
How Do I Pay It Back?
The money you borrow is called the capital and you will be charged interest on it till it is repaid in full. Also, the type of mortgage are offered will depend on whether you want to repay on an interest only basis or a repayment basis.
A repayment mortgage is a where you repay some of the capital, (the amount you borrowed) along with a bit of the interest each month. As long as you meet all your monthly payments you will have repaid the entire amount by the end of the mortgage.
With an interest-only mortgage, you only pay the interest off and not the capital. These mortgages are being offered less and less as regulators are worried about people accruing large debt with no way of repaying it.
Combination of repayment / interest-only
There might still be the option to combine both the above options, dividing your mortgage loan between a repayment and interest-only.
Furthermore, there are two further categories of mortgage,:
Fixed rate: where the interest you pay stays the same for a set number of years, often two to five years.
Variable rate: where the interest you pay can change.
Fixed rate mortgages
Some people like fixed rate mortgages die to the peace of mind that payments will remain the same. However, with these types of mortgages, the interest rate is slightly higher meaning you won’t benefit from a fall in rates.
Before taking out a fixed rate mortgage make sure you know if there are any charges if you want to leave the deal early. If you are coming to the end of a fixed term shop around for a new deal or you’ll be moved automatically onto your lender’s standard variable rate which will be higher.
Variable rate mortgages
Variable rate mortgages are mortgages where the interest rate can change alongside the Bank of England’s base rate. You will have to budget to afford an increase in payments if rates do rise.
This means a discount off the lender’s standard variable rate (SVR). It only applies for a certain length of time, usually two or three years, though it doesn’t necessarily follow that the bigger the discount, the lower the interest rate.
The interest rate on tracker mortgages move in line with the Bank of England’s base rate with an added few percent. They usually they last a short term, maybe two to five years, though some lenders offer trackers lasting the life of your mortgage.
Capped rate mortgages
This means your rate moves in line with the lender’s SVR. The cap means the rate won’t rise above a specific level. However, the cap can be set quite high, with a slightly higher rate than other fixed and variable mortgages. Your lender can also change the rate at any time up to the level of the cap.
These mortgages work by linking your savings and current account to your mortgage. This means you only pay interest on the difference. You make mortgage repayments every month but your savings act as an overpayment. This could help clear your mortgage early.