Buying a home is the largest purchase you’re likely to make. Before you arrange your mortgage, make sure you know what you can afford to borrow. Find out where to get a mortgage, the different types and how the process works...
|Mortgages guide for a beginner|
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. 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
Don’t stretch yourself if you think you’ll struggle to keep up repayments, and 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 if you have any debts. They may 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 may 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.
Applying for a mortgage
You will be asked a range of questions about the type of mortgage you want, if it is appropriate for you and how long your mortgage should last. Depending on your answers, the lender or mortgage broker will be able to recommend a mortgage that meets your needs and circumstances. Taking advice will almost certainly be best unless you are very experienced in financial matters in general, and mortgages in particular.
How you pay back your mortgage
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.
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.