Menu

Hello

Guide To Mortgages

A mortgage is a loan typically taken out with a bank to buy a property or plot of 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. With this in mind it’s important to ensure repayments are always affordable. Given these points, 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.

1. Working out what you can afford

Don’t overly stretch yourself if you think you’ll struggle to keep up repayments. Also, always 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 if you have any debts. They might also ask for information about household bills, child maintenance and personal expenses.

Lenders ultimately want proof that you will be able to keep up with repayments if interest rates rise. It’s entirely possible that they might refuse to offer you a mortgage if they don’t think you’ll be able to afford it. Using our illustrative mortgage calculator is a good starting point.

2. Where to get a mortgage

Once you’ve established what you can afford, you can apply for a mortgage directly from a bank or building society. You can also use a mortgage broker or independent financial adviser (IFA) who can compare different mortgages on the market.

Some brokers look at mortgages from the ‘whole market’ while others look at products from a number of lenders. If you don’t know who to talk to, just ask and we’ll be happy to recommend a starting point. Taking advice will almost certainly be best unless you are very experienced in financial matters in general, and mortgages in particular.

3. Applying for a mortgage

Applying for a mortgage is often a two-stage process. The first stage usually involves a basic fact find to help you work out how much you can afford, and which type of mortgage(s) you might need. The second stage is where the mortgage lender will conduct a more detailed affordability check, and if they haven’t already requested it, evidence of income.

 

Stage 1

Generally speaking, the lender or mortgage broker will ask you a series of questions to work out what kind of mortgage you want, and how long you want it for. They’ll also try to work out, without going into too much detail, your financial situation. This is generally used to provide an indication of how much a lender might be prepared to lend you. They should also give you key information about the product, their service and any fees or charges if applicable.

Stage 2

This is usually where you begin your application. The lender or mortgage broker will begin a full ‘fact find’ and a detailed affordability assessment, for which you’ll need to provide evidence of your income and specific expenditure, and ‘stress tests’ of your finances. This could involve some detailed questioning of your finances and future plans that could impact your future income. They’ll also assess the impact on your repayments should interest rates rise in the future. 

4. Your deposit. When size really does matter

When buying a property, you will need to pay a deposit, of which you inputted in to the mortgage calculator before. This is a chunk of 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.

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. Fear not if your deposit is below this, there are mortgages available and some creative lenders can support buyers with very minimal deposits; but these lenders invariably pay increased rates.

5. Typers of mortgages

Applying for a mortgage is often a two-stage process. The first stage usually involves a basic fact find to help you work out how much you can afford, and which type of mortgage(s) you might need. The second stage is where the mortgage lender will conduct a more detailed affordability check, and if they haven’t already requested it, evidence of income.

 

Repayment mortgage

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.

Interest only mortgage

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 mortgage

You can ask your lender if you can combine both options, splitting your mortgage loan between a repayment and interest-only mortgage.

Different type 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.

"We love to introduce sellers to buyers, landlords to great tenants and people with homes they love whilst giving the majority of our profits to your favourite charities. We really are one of a kind in Staffordshire with an outstanding approach"

staffordshire_knot_estate_agents_white_logo_transparent

01782-980730

lets.talk@staffordshireknotestateagents.co.uk

Subscribe

Be the first to find out about exclusive properties, industry news, views and the great work we do with your favourite charities.

Copyright© Staffordshire Knot Estate Agents Ltd 2018. All rights Reserved.