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What is a mortgage?
Why would I need a mortgage?
What is an interest rate?
What determines the size of my mortgage?
How long does a mortgage last?
How do I repay my mortgage?
What extra costs will I face?
Few of us are financially capable of buying our own home outright as the property market is so costly it is unassailable to most people. Mortgages allow us to buy our homes and are probably the greatest single financial commitment any of us will make in our life.
A mortgage is simply a loan that you taking out to buy your house. It is a secured loan that you are borrowing against the value of the house you want to buy. The rate you will pay for this loan is set to the interest rate that drives the market. The interest rate is probably the most important part of your mortgage and it can determine how comfortable your loan is or even if it possible at all.
In order to adapt to the interest rate and offer options that suit a wide variety of customers the lenders provide a wide variety of choice, which can be daunting to those both new to and experienced with mortgages. There are discount rates, tracker rates, capped rates, and fixed rates. Top
You may need a mortgage if you are a first time buyer looking to get on the property ladder, or if you are looking to re-mortgage your property for a loan, or if you are looking to buy a property and rent it out. Top
Read more about re-mortgaging.
Interest rates, since 1997, are set by the Bank of England in order to regulate the price of money by curbing inflation. This is done by increasing or decreasing the supply of money and thus setting its value as a scarcity, for example: the more money in circulate the less each £1 is worth.
Interest rates can fluctuate regularly and in the past the yearly average of interest rates has been as high as 14.64% in 1990 or as low as 3.69% in 2003.Top
Deciding on the size of your mortgage is a personal and important task. The warning given out to all people buying their home is: "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it." It’s a good warning and one you should keep in mind while deciding on the size of your mortgage as since 2004 repossessions have been on a steady rise.
The general rule when deciding on the size of your mortgage is that you can borrow three times the first income and half of the second or two and half times joint income. Top
There is no set or ‘right’ length for a mortgage but 25 years is the average and most people tend to have mortgages throughout their working life.
The potential length varies from lender to lender and can be set to different terms if they agree you can afford to keep up the payments. Top
Your basic choice is between regular payments, which covers the capital you owe and the interest accrued, or interest only repayments with some form of investment going along with it in the view that it will grow to cover the capital loan. Interest only repayments are a big risk, you could end up with a lot of extra money when the mortgage is paid off or you could end up falling short and having no way to cover the loan.
A new type of mortgage has surfaced called a flexible mortgage. In a flexible mortgage you can set the rate through which you repay your loan. If hard times fall you can even call off the payments altogether, for a time. The gap is paid for by paying over the required amount during the good times so that you build up credit that is available for you to fall back on. Top
When buying a property there are a series of costs you will have to take into account outside of your mortgage.
Depending on the size of your loan you may have to pay a Higher Lending Charge.
There is the legal requirement to pay stamp duty land tax and the additional cost of your solicitor’s fee. Top
Read about Stamp Duty
Read about Higher Lending Charges
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