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Put simply, a mortgage is a loan given out to help a customer buy a property whereby the property in question is put up as security.
The loan is then paid off gradually over time with the exact method of repayment depending on the type of mortgage taken out.
Put simply, a mortgage is a loan given out to help a customer buy a property whereby the property in question is put up as security.
The loan is then paid off gradually over time with the exact method of repayment depending on the type of mortgage taken out.
First things first, you’ll want to work out how much you can actually afford to borrow without struggling to keep up with regular monthly repayments.
There are three basic options here:
Again, we’ll go through the details of each in the following sections.
The flexibility of your repayments should also come into consideration here, as it’s likely that you’ll want the option to pay off chunks of your mortgage in lump sums if you happen to come into enough money to do so. This is called making overpayments.
When you take out a repayment mortgage, each monthly payment is made up of a proportion of the total value of the loan (the capital) plus interest. You’ll also have the option of making overpayments as and when you can or want to thereby reducing the amount you have left to pay.
The benefit of these kinds of mortgage is that you can guarantee that by the end of the term, the entire mortgage will be paid off, and so repayment mortgages are considered to be fairly low-risk.
When you take out an interest-only mortgage, on the other hand, your monthly repayments consist only of the interest, and then you pay off the remaining capital by or at the end of the agreed term. Those who do this generally also pay into a savings account of some kind regularly in order to make sure that they have enough cash to pay off the capital.
There is a further option available in the form of offset mortgages. With these, your savings account and your mortgage are combined such that any money in your savings account can be used as temporary overpayments. You will still be able to access your savings while at the same time making savings on your mortgage repayments.
Each mortgage lender will have a standard variable rate (SVR) of interest, varying quite significantly from provider to provider. Each lender’s SVR will change more or less in line with (while staying consistently higher than) changes in the Central Bank base rate. How close they stay to the base rate is entirely at the discretion of the lender and there are also various other considerations that come into play in the calculation of the SVR.
When you take out a variable rate mortgage, you pay the lender’s SVR.
When you take out a fixed-rate mortgage, the level of interest you pay will remain the same for a set term. This term is usually anywhere from two to five years long, though ten-year fixes are making a comeback.
Fixed-rate mortgages are seen as relatively secure, allowing you to budget accurately, but you could find yourself losing out depending on how interest rates generally fluctuate during the fixed term.
You will not always have to pay all of these fees, for example, not all lenders charge for arrangement, but it is worth bearing in mind that there will often be extra costs you might not have been initially aware of when you decided to take out a mortgage.
