A Beginner’s Guide to Mortgages
Mortgages are the largest single transaction in most people’s lives. Buying a property can be a stressful and time consuming experience, although nowadays the financing of a mortgage is more a case of finding and selecting the most suitable deal, rather than simply accepting a lender’s offer or the cheapest product.
Banks, Building Societies, and smaller niche lenders compete for your business, all offering a variety of interest rate deals, i.e.; Tracker, Fixed, Discounted and Offset to attract borrowers.
As we are Independent, it means we will act on your behalf and have no ties or association with any lender, which ensures you, will receive impartial and unbiased advice, when choosing the right deal. We will act as your agent in dealing with all the parties involved including Lenders, Solicitors, Estate agents, Surveyors and basically ‘hold your hand’ through the whole process.
With our extensive contacts and years of experience we can even appoint specialist contractors and engineers if specific survey reports are required and also help you chose the most suitable types of Insurance for your new Mortgage and property.
Our aim is to make the whole process as simple and straightforward as possible and if there are obstacles that need to be overcome, we will be there to guide you through them and here is a simple guide which we hope will help:
What is a Mortgage?
A mortgage is a loan taken out to buy property or land. Most run for 25 years but the term can be shorter or longer.
The loan is ‘secured’ against the value of your home until it’s paid off and If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.
Working out what you can afford.
Most lenders provide affordability calculators on their website to give you a guide. It’s important not to overstretch yourself if you think you’ll struggle to keep up repayments. Also, think about the running costs of owning a home such as household bills, council tax, insurance and maintenance.
Lenders will want to see proof of your income and certain expenditure, and they all have different criteria and requirements when it comes to additional income such as on Bonuses, Overtime, Commissions and Tax Credits etc.
They might ask for information about household bills, child maintenance and personal expenses. Lenders want proof that you will be able to keep up repayments if interest rates rise. They might refuse to offer you a mortgage if they don’t think you’ll be able to afford it.
Where to Get a Mortgage
You can apply for a mortgage directly from a bank or building society, choosing from their product range, you can also use a mortgage broker or independent financial adviser (IFA) who can compare different mortgages on the market, as well as mortgages which are not offered directly to customers.
Some brokers look at mortgages from the ‘whole market’ while others look at products from a number of lenders, they’ll tell you all about this, and whether they have any charges, when you first contact them.
Spectrum Independent are Whole of Market
Taking advice will almost certainly be best unless you are very experienced in financial matters in general, and mortgages in particular and getting a recommendation from a friend is always the best route.
When buying a property, you will need to pay a deposit. This is the money that goes towards the cost of the property you’re buying, the more deposit you have, the lower your interest rate could be.
When talking about mortgages, you might hear people mentioning “Loan to Value” or LTV. This might sound complicated, but it’s simply the amount of your home you own outright, compared to the amount that is secured against a mortgage.
For example, with a £15,000 deposit on a £150,000 property, the deposit is 10% of the price of the property, and the LTV is the remaining 90%.
The mortgage is secured against this 90% portion. The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk with a smaller loan.
The cheapest rates are typically available for people with a 40% deposit.
How Does a Mortgage Work?
The money you borrow is called the capital and the lender then charges you interest on it till it is repaid. The type of mortgage you are able to apply for will depend on whether you want to repay interest only or interest and capital.
With repayment mortgages you pay the interest and part of the capital off every month. At the end of the term, typically 25 years, you should manage to have paid it all off and own your home.
With interest-only mortgages, you pay only the interest on the loan and nothing off the capital (the amount you borrowed).These mortgages are becoming much harder to come by as lenders and regulators are worried about homeowners being left with a huge debt and no way of repaying it. You will have to have a separate plan for how you will repay the original loan at the end of the mortgage term.
Combination of repayment and interest-only mortgages
You can ask your lender if you can combine both options, splitting your mortgage loan between a repayment and interest-only mortgage.
Different Types of Mortgage
Once you’ve decided how to pay back the capital and interest, you need to think about the mortgage type. Mortgages come with fixed or variable interest rates. With a fixed-rate mortgage your repayments will be the same for a certain period of time – typically two to five years regardless of what interest rates are doing in the wider market.
If you have a variable rate mortgage, the rate you pay could move up or down, in line with the Bank of England base rate. There are various types of variable rate mortgages.
With so many mortgages to choose from and the introduction of Help to Buy schemes and Consumer Buy to Let, there are so many points to consider when looking for the right mortgage, it’s not surprising that many people seek professional help, we won’t confuse you with jargon, but we will provide practical mortgage advice. By using the latest and most up to date mortgage software, we can provide you with a wide range of mortgage quotes, help and advice today.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. The actual rate will depend on your circumstances. Please ask for a personalised illustration