What Is a Mortgage
So first things first, what is mortgage? Essentially, a mortgage is a secured loan to enable you to purchase a property. The key difference from other loans is that this one is secured against your property. Given that a house is probably one of the biggest investments you’ll make in your life, it’s worth knowing the ins and outs of what mortgages are and how they work.
The mortgage lender has what is called a ‘first charge’ – which means that any outstanding mortgage loan must be paid back first.
And remember, because your home loan is secured against your property, if you don’t keep up your monthly mortgage payments, your lender can repossess your home to recover any money you owe. We can advise on and arrange the mortgage as well as relevant protection policies to help keep your home should you find yourself unable to keep up repayments.
How much can I borrow?
This will depend on your individual circumstances, taking into account your income and expenditure as well as your credit history.
That’s why it makes sense to find out how much you can borrow before looking at properties, so you can get an idea of what you will be able to comfortably afford. Some lenders will work this out before you find a property. This is called an approval or a decision in principle. As mentioned, these calculations will be based on you guaranteed income.
Viewing properties that are out of your budget will only lead to disappointment if you aren’t able to get a large enough mortgage – so it’s worth looking into before you get carried away house-hunting!
Alternatively, arrange a call back from one of our team of mortgage advisors who’d be happy to discuss this with you along with any costs.
How do I repay a mortgage?
Mortgages usually have a term of around 5- 40 years, and where possible you should opt for the shortest term you can afford as this means you will pay less on your mortgage overall. There are two basic repayment methods for mortgages – a repayment mortgage and an interest only mortgage.
A repayment mortgage is typically the most favoured type of mortgage. Your monthly payments will go towards reducing your mortgage as well as repaying the interest. Each month, you are paying off a small part of your mortgage loan capital.
Pro: A simple approach. You can see the mortgage getting smaller and you have the certainty that your mortgage will be repaid by the end of the term. Assuming you have made all you repayments.
Con: The initial payment will go towards paying off the interest so in the early years, the amount you owe will not reduce by much.
Interest only mortgages
Interest-only mortgages on the other hand, are slightly more complex and harder to get. With this type, you will only pay off the interest charged, so you are not actually repaying the loan itself. You will need to have a detailed plan agreed with your lender as to how you will repay the full loan amount at the end of the term. For example, investments, a savings plan, downsizing, using the equity, lump sum payments etc.
Pro: If the plan you chose works effectively then you could be in a position to pay off your mortgage earlier.
Con: Very few savings plans are guaranteed to repay your mortgage in full. At the end of the term, you are responsible for repaying the mortgage in full. You will be charged interest on any outstanding balance until it is repaid.
What if I want to re-mortgage?
By moving your mortgage to a new lender you may be able to take advantage of a better mortgage rate than the one you’re currently paying. Some lenders offer to pay the legal costs and valuation fees associated with re-mortgaging.
Remember that you may have to pay an early repayment charge to your existing lender if you re-mortgage, so you will need to check the terms of your mortgage carefully and confirm the arrangements with your current lender.
If you want to find out more about mortgages, re-mortgaging, interest rates or anything else that we have mentioned, then request a call back from our award winning mortgage services. We have over 70 years’ experience in property, so we’re here to help you with all the little details that help make up the huge process.