A mortgage is a home loan which you can borrow to purchase a new house.
The term for a mortgage can be shorter or longer but most run for 25 years. Until the loan is paid off, it is secured against the value of your home. The lender can take back your home and will sell it to get their money back if you cannot keep up with your repayments.
Working out on what you can afford
To keep up the repayments if you think you will struggle, then don’t stretch yourself and also think about the expenses such as insurance, maintenance, council tax and household bills. Certain expenditure, income proof and if you have any debts will be checked by the lenders.
They can also ask for the information about personal expenses, child maintenance and household bills, also if in case, the interest rate rises they would like to check the proof if you will be able to keep up with the repayments or not. In any case, if the lender thinks that you will not be able to afford the mortgage, then they might refuse to offer you a deal.
Where to get a mortgage?
Directly from a building society or bank, you can apply for a mortgage by choosing from the range of products. You can also select the independent advisor or a mortgage broker who will be able to compare mortgages not offered directly to the customers and different mortgages from the market.
It would be best to take an advice if you are not experienced in financial matters particularly in mortgages. Without receiving any advice it is possible to choose a mortgage known as the execute-only mortgage under limited circumstances. The lender will confirm by writing that you have not received any advice and to see if the mortgage is suitable for you, it will be assessed. For some cases, you will need to confirm that you are happy to go ahead and also you are aware of taking the mortgage without receiving advice.
To find the mortgages tailored to your needs, you can also use the comparison websites but remember that you must make use of more than one site before making any decision for the mortgage. Doing some research for features as well as the type of product you need to purchase, it is important to do some research.
The process of applying for a mortgage
It is often a two-stage process while applying for a mortgage
First stage –
Couple of questions such as for how long you want the mortgage and what kind you want, will be asked by the mortgage broker or the lender. Without going into too much detail about your financial situation they might try to work out. All these information generally will give you an idea about how much amount a lender is ready or prepared to lend you and might give you the important information about the product, services and the fees if applicable.
The second stage –
Your application will begin at this stage where you’ll need to provide evidence of specific expenditure and income as well as your financial stress test. The lender will provide you with the binding offer and documents explaining terms and conditions of your mortgage along with the period of 7 days to make comparisons and accept your lender’s offer whereas some lenders will give you more than 7 days to do this.
The size of your deposit matters
A deposit will be needed to be paid while buying a property. Your interest rate will be lower if you have more deposit. You might hear about a loan to value (LTV) while talking about mortgages. LTV might sound complicated to you but in simple words, it is the secured amount against a mortgage compared with the amount of your home you own.
As the lender takes less risk with a smaller loan, the interest rate will be found to be lower due to the lower LTV.
What are the different types of mortgages?
The different types of mortgages come with variable interest or fixed interest rates. Basically, for two to five years your repayments will be same in case of fixed interest rate mortgages. Whereas in the line with a base rate of Bank of England, the rate which you pay could vary with the market rates.
Working of a mortgage
It will depend upon whether or not you want to pay interest only or both capital and interest. After you borrow the money called as capital the lender will charge you interest on it until capital is repaid.
Interest only mortgage – In this type of mortgage you pay nothing off the amount you borrow called as capital but you will need to pay the interest for the loan. The regulators and lenders are worried about homeowners having no way of repaying the amount and left with a debt so these type of mortgages have become much harder. At the end of the term, you will need to have a plan separately for repaying the original loan.
Repayment mortgage – The part of a capital and the interest is paid every month in this type of mortgage. You should manage to pay all the capital and own your home at the end of the term.