How does a mortgage work?
A mortgage is a loan from a bank or building society, taken out with the sole purpose of buying a home or land. You repay the loan over a set period of time with interest, the rate of which can be fixed or variable.
How much can I borrow?
All lenders assess how much you borrow via their own affordability assessments so the amount you are able to borrow will differ from lender to lender. As part of this, your outgoings and your income will be looked at to determine whether you’re able to afford the monthly repayments.
What criteria do I have to meet to get a mortgage?
Along with meeting your lender’s affordability criteria you’ll need to have a good credit score, no recent arrears or County Court Judgements (although there are specialist lenders who cater for such customers) and be within the lender’s age criteria. Most lenders have a maximum age limit (for when the mortgage must be paid off) of between 70 and 85.
What are the different types of mortgages?
There are two main types of mortgages - Fixed Rate mortgages and Variable Rate mortgages, which come in the form of Tracker, Discount and Standard Variable Rate (SVR) mortgages. Fixed rate mortgages feature interest rates that will not change for the duration of the mortgage deal. Variable rate mortgages feature a changeable interest rate.
What’s the difference between repayment mortgages and interest only mortgages?
With a repayment mortgage you’ll repay both the loan (capital) and the interest each month. With an interest only mortgage you’ll only repay the interest, without repaying any of the actual loan. If you choose to do this your monthly repayments will be considerably cheaper however it’s essential that you have a plan in place for repaying the loan at the end of the mortgage term.
How can I get the best rate on my mortgage?
The very best mortgage rates are reserved for borrowers with large deposits. Opting for a shorter deal can also help you to get a better rate. Most lenders offer cheaper rates on two or three year deals than they do on five or ten years.
What fees are involved?
The main fees associated with getting a mortgage are booking fees, arrangement fees, valuation fees and legal fees but not all fees will apply to every deal.
If you have a small deposit you may also have to pay a higher lending charge (HLC) which can be up to 1.5% of the price of the property.
Finally, you’ll be charged a small fee by the lender for transferring the mortgage funds to your solicitor. This is known as a CHAPS fee and is usually less that £50.
What mortgage features should I look out for?
Some mortgages include extra features which you may find useful. If you would like to be able to pay down your mortgage balance faster, for example, you should look for a mortgage which allows overpayments.
Alternatively, you may benefit from a payment holiday facility. Some mortgage lenders will allow you to take a break from your mortgage repayments for an agreed number of months.
How can I compare mortgages?
There are a huge number of mortgage products on the market and finding the right one for you depends very much on what you’re looking for from your home loan. Know Your Money’s free and easy to use comparison tables can help you to compare deals from across the market, allowing you to sort them by fees, rates or overall cost.