Purchasing a home is likely to be the largest transaction you will make! It is important you understand what you can afford when it comes to getting a mortgage. This is where we can help.
What is a mortgage?
The term mortgage originates from old French mort gage meaning (“death pledge”). A mortgage is a type of loan which is taken out to buy either property or land.
The majority of mortgage loans run up to 40 years however this can vary depending on budget and age. The mortgage loan is ‘secured’ against the current value of your home until it’s fully paid off.
It is vital that affordability fits with yourself as if you can’t keep up with your repayments the lender can repossess your home. They will then sell it and keep the money to settle to loan.
Working out what you can afford
It is important you know how much you can afford to borrow. It is not ideal to stretch yourself if you think you would struggle to keep up with the mortgage repayments.
Our FREE mortgage service exists to expand your knowledge on mortgages and everything that comes with it. We will go over your options in a clear and understandable way and help you feel confident of what is achievable for your situation.
Consider your costs of owning a home such as household bills, council tax, insurances and flat costs (if applicable).
All mortgage lenders will want to see proof of your income, certain expenditure and any debts you may have. They might even ask for information about other household bills, child maintenance, and personal expenses.
Mortgage lenders require this information as their aim is to prove that you are able to keep up with the mortgage repayments if interest rates rise.
Lenders may refuse to offer you a mortgage if they don’t think you’ll be able to afford it or if your credit score isn’t high enough. We highly recommend you read the below blog to make sure you a mortgage ready!
Where and how to get a mortgage
You can apply for a mortgage directly from a bank or building society. However, this will require you to dedicate a decent amount of your time picking the best rates.
Using a mortgage broker in Portsmouth such as YesCanDo Money allows access to the whole mortgage market. We gather all the information the lenders need from you and compare all the different mortgage rates and deals on the market.
This includes mortgages that are not offered directly to you as a bank or building society customer.
Unlike a lot of mortgage brokers, we do not charge you a penny for our services. We are experts in our field and provide a quality service for free. We do all the hard work for you saving you time, hassle and money. We get paid by the lenders themselves.
Your deposit – The bigger the better
When it comes to buying a property with a mortgage you will need to pay a deposit. This goes towards the cost of the property you’re buying alongside what you borrow.
The interest rates available to you will vary depending on your deposit size. The more deposit you have the better interest rates you will have access to.
You may have heard the term Loan to Value/LTV before. This might sound confusing, but it’s simply the amount of your home that you own outright vs the amount that is secured against a mortgage.
For example, with a £25,000 deposit on a £250,000 property, the deposit is 10% of the price of the property, and the loan to value or LTV is the other 90%.
Your interest rate is likely to be lower if your LTV is lower. This is because smaller loans are much less of a risk for mortgage lenders.
The average deposit for first-time buyers in 2018 was 16%.
How does a mortgage work?
Once you have a mortgage in place you will pay a monthly repayment including interest. The money you loaned is called the capital and the lender charges you interest on this capital until it is repaid.
There are several types of mortgages. The type of mortgage available to you will depend on whether you want to repay interest only or interest and capital.
Find more about the mortgage appilcation process here.
If you go with a repayment mortgage you will pay both the interest and part of the capital off every month.
When the term comes to an end, you should be at a point where you have paid it all off and own your home.
It is what it says on the tin, interest-only mortgages mean you only pay the interest on the mortgage loan. This, however, means you will pay 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.
These mortgages are becoming both unfavoured and unheard of. This is because as you are only paying off the interest, you will be left with a debt that could potentially stay with you with no way of repaying it.
If you do get an interest-only mortgage, you will have to have a separate repayment plan. This plan will decide how you repay the original loan (capital) at the end of the mortgage term.
Combination of repayment and interest-only mortgages
There are mortgages out there which will allow you to split your mortgage repayments between both repayment and interest-only mortgage.
Different types of mortgage
Once you have chosen your preferred way of paying back what you owe / the interest, it is time to pick the mortgage type.
You will have a choice of both fixed or variable interest rates with your mortgage.
A fixed-rate mortgage means your repayments will continue to be the same for a certain time period. This is usually between two to five years.
These rates will be fixed regardless of what interest rates are doing through the mortgage market. This could both be in your favor or against you, however, they give stability of your interest and repayments.
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.
If you chose a variable rate mortgage, then the interest rate you pay will move up and down depending on the market. Your interest and repayments are then fully dependent on the market at the present time.
What fees will I pay when getting a mortgage?
So you need to get a mortgage and you are thinking to yourself, how much is this going to cost me? Below we list the main fees that you will most likely have to pay when getting a mortgage. We have a separate guide for more info on all the costs you can expect to pay when arranging a mortgage. It is useful to know how much fees you will need to pay before you start your mortgage application process.
There is no hiding from the fact that you will have fees to pay when getting a mortgage. The fees that you may need to pay are –
- Mortgage Arrangement Fees
- Legal Fees
- Telegraphic Transfer
- Valuation and Survey Fees
- Mortgage Broker Fees
- Local Authority Search
- Stamp Duty
Your next step towards getting a mortgage
Your next step is to book an appointment with us to look over your options. This will open your eyes to how much you can borrow versus how much you need to save for a deposit.
Mortgages can be confusing but with us, we aim to make them as simple as possible. We do all the hard work for you saving you time, hassle and money