A mortgage is a loan that you take out from a lender like a bank or finance company for your new home. It\u2019s given for a particular number of years, typically ranging from 25 to 30 years. Shorter loan periods are also available if you don\u2019t wish to stretch repayments over a long number of years. Remember that you can use funds from a home loan only for the purchase of a property.<\/p>\n
Another thing to remember is that lenders only give out mortgage loans against the property you want to buy. It\u2019s a secured loan that means the lender takes a low level of risk when they approve your mortgage application. If you fail to manage the monthly repayments, you might have to sell off your house to repay the loan. Thus, you should be very clear about whether you\u2019ll be able to afford the repayments during the entire term of the loan as mortgage can prove risky.<\/p>\n
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Types of Mortgages<\/h3>\n
Mortgages don\u2019t have a standard rate or capital amount. As different people have different circumstances, the money they want to borrow and the interest rate they can afford vary. Lenders understand this and offer customized deals to every applicant. That means, another home loan applicant you know may have a better deal as compared to you.<\/p>\n
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- Interest-only:<\/strong><\/li>\n<\/ul>\n
In interest-only home loans, you pay just the interest every month. You don\u2019t repay the capital during the term but at the end of the term. Those who want to reduce their monthly expenses can go for this. Yet, you need to have confidence that by the end of 30 years, you\u2019ll have saved enough to repay the capital in lump sum. It may also be the case that you\u2019re sure of a huge inheritance that will help pay off the loan. Lenders usually insist on knowing how you plan to repay the loan.<\/p>\n
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- Fixed-rate:<\/strong><\/li>\n<\/ul>\n
In fixed-rate home loans, the interest rate you and the lender agreed to at the outset remains the same. That is, no matter whether mortgage interest rates go up or down, it has no effect on your deal. You\u2019ll pay the same interest rate for a fixed number of years. The first-time home buyers who want to stick to their monthly budget and want to be sure of their monthly repayments should go for this type of mortgage. Suppose you chose a 4% interest rate, you\u2019ll pay 4% even if the rate goes up to 6% or comes down to 2%.<\/p>\n
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- 95% :<\/strong><\/li>\n<\/ul>\n
How much you want to borrow depends on how much deposit you pay from your own pocket. The less money you\u2019re willing to put up as deposit, the more you\u2019ll have to borrow from a lender. A 95% mortgage deal is for buyers who have a miniscule amount of deposit, that is just 5% of the total value of the property. Suppose a property\u2019s value at \u00a3400,000 and you have only \u00a320,000 as savings, this means that you\u2019ll have to look for a lender offering a 95% deal. Such deals are hard to find as you must have at least have a deposit of 20%.<\/p>\n
![\"mortgage\"](\"https:\/\/www.eaffyfinance.co.uk\/wp-content\/uploads\/2018\/08\/TYPES-MORTGAGES.png\")
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- Flexible:<\/strong><\/li>\n<\/ul>\n
A flexible deal gives buyers the much sought after flexibility in repayments. When you have more money in your bank account, you can repay a higher amount than what you owe. In the same way, when you\u2019re short on money, you can take a repayment holiday for a few months. Like a thing too good to be true, this deal also comes at a higher interest rate than others.<\/p>\n
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- Buy to let:<\/strong><\/li>\n<\/ul>\n
Assume the house you\u2019re now living in is already yours. You have some extra money and you want to invest in real estate. But this amount does not cover the entire price of the house. The second house you\u2019ll lease out to tenants and earn rental income from it every month. In such a case, the best deal for you is a buy to let mortgage. It\u2019s seen as a business transaction as you\u2019re buying property for earning income thereon. Hence, you should prepare yourself for higher rates and fees than a residential mortgage. The LTV (Loan to Value) which determines how much percentage of the value of the property you can borrow is also high, typically 85%. This means you need to have a deposit of 15%.<\/p>\n
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- Tracker:<\/strong><\/li>\n<\/ul>\n
A tracker deal is in sync with the Bank of England rates. As the Bank\u2019s base rate goes up, your lender will also raise your interest rate after adding a few percent to it. Likewise, if the Bank\u2019s base rate fall, your lender will also cut down on your interest rate. Usually, the rate you pay will be one or two percent above or below the base rate. Lenders also set a minimum rate below which their rate will never fall. So there can never be a situation in which you pay 0% interest.<\/p>\n
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- Discount rate:<\/strong><\/li>\n<\/ul>\n
Whenever you sign a home loan deal, you\u2019ll probably have a fixed interest rate for the first 5 years. Then once this period is over, you\u2019ll shift to the lender\u2019s SVR (Standard Variable Rate) where rates change all the time. With a discounted rate mortgage, you\u2019ll get a discount over and above the SVR and this lasts for 2 to 5 years.<\/p>\n
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- Capped rate:<\/strong><\/li>\n<\/ul>\n
With a capped rate mortgage, there will be a cap on how far the interest rates can rise. This is like a precaution in times when the interest rates go on rising. Borrowers get peace of mind as they know that their payments won\u2019t exceed a certain limit.<\/p>\n
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- Cashback:<\/strong><\/li>\n<\/ul>\n
You get a lump sum when your mortgage begins. This lump sum may be a fixed amount offered by the lender or a percentage of your loan. It\u2019s a marketing incentive and is seen infrequently nowadays. It\u2019s helpful to home buyers who want to renovate their bedroom or kitchen.<\/p>\n
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- Offset:<\/strong><\/li>\n<\/ul>\n
An offset mortgage is also called current account mortgage. It uses the money you have in your savings account to help you pay less monthly mortgage payments. Suppose, you took out a home loan for \u00a3 150,000 and your savings account has a total of \u00a350,000, then your interest will be calculated on the net balance which is the difference between the two. The great thing about this is that you have instant access to savings, at the same time saving on your monthly mortgage payments. Essentially, savings \u2018offset\u2019 your mortgage. This type is beneficial anytime, not just when interest rates are low.<\/p>\n
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Mortgage FAQs<\/h3>\n
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- I\u2019m 28, have my own business and not yet married. Can I get a mortgage?
\n<\/strong>It\u2019s commonly believed that you need to be working in an office in order to successfully get a home loan approval. This is false. Even a self-employed person can get a mortgage provided you show your three years\u2019 financial statements. If you have just two years\u2019 statements, your chances are still 80-90%. The criteria a lender looks for is your ability to repay. If your net profit allows you to afford a home loan, that\u2019s great. The deposit remains the same for a bachelor or family person.<\/li>\n- My friend and I are interested in the same property. Can we pool our funds together and buy it?
\n<\/strong>Yes, if you both have good credit scores and enough deposit and income, there should be no problem. However, complications may arise as to how much ownership each person has in the property and if either of you can\u2019t afford to pay for the property. In a joint tenancy, your share passes to your friend when you die. You should seek professional advice from an independent solicitor.<\/li>\n- HELP! I earn around \u00a325,000 a year. Will I be eligible for a mortgage?
\n<\/strong>Yes. Your expenses and affordability are taken into consideration during approval. You should get in touch with a mortgage broker who will work out your finances and suggest the best deal.<\/li>\n- I\u2019m currently unemployed due to a health condition. My only income is from my health insurance. Can I get a mortgage?
\n<\/strong>Unfortunately, no. Permanent Health Insurance (PHI) is not considered as a source of income in a mortgage application.<\/li>\n<\/ol>\n<\/p>\n
- My friend and I are interested in the same property. Can we pool our funds together and buy it?
- I\u2019m 28, have my own business and not yet married. Can I get a mortgage?
- Offset:<\/strong><\/li>\n<\/ul>\n
- Cashback:<\/strong><\/li>\n<\/ul>\n
- Capped rate:<\/strong><\/li>\n<\/ul>\n
- Discount rate:<\/strong><\/li>\n<\/ul>\n
- Tracker:<\/strong><\/li>\n<\/ul>\n
- Buy to let:<\/strong><\/li>\n<\/ul>\n
- Flexible:<\/strong><\/li>\n<\/ul>\n
- 95% :<\/strong><\/li>\n<\/ul>\n
- Fixed-rate:<\/strong><\/li>\n<\/ul>\n