Different mortgage options
To buy a home, you will probably need a mortgage. Which essentially is a large loan secured against your home, usually for a standard term of 25 years (although this can vary with certain lenders).
Most lenders will allow you to borrow at least three times your annual income, although your lender may be willing to give you and your partner more depending on your circumstances and income.
You will need a deposit
Most mortgages will require you to put down a deposit of some sort and the more you can put down the better – in other words, the majority of lenders won’t lend you 100% of the value of the home you want to buy and expect you to put some of your own cash into the pot too. Nevertheless, most lenders will offer a mortgage up to 95% of the property value, and some will even provide 100% mortgages.
However, the more you borrow, the more of a risk you are and a lender is unlikely to hand over large sums of cash without taking precautions or asking for insurance.
Don’t forget that a mortgage is a secured loan, which means that the lender could take your home away if you do not keep up with payments.
Two ways to repay
There are two main ways you can repay your home loan, either through a Repayment mortgage or an Interest Only mortgage.
Repayment
With a repayment mortgage you pay back the capital and the interest on your loan on a monthly basis. If you can afford to make monthly payments on the capital (the lump sum you borrowed in the first place) you should aim to do so. This type of mortgage is guaranteed to pay your mortgage off without relying on an underlying investment – and therefore without the associated risks.
Interest Only
We currently only offer new loans on a repayment basis.
Types of mortgages
Trackers. Fixed rates. Variable rates. There's a wide and potentially confusing variety of mortgages available on the market. So which one should you choose? Here's a quick guide to the basic differences between each type of mortgage:
Fixed Rate
With a fixed rate mortgage you pay an agreed rate of interest for a set period of time e.g. three years. Knowing the exact amount of money you will pay each month makes it easier to budget and gives you the reassurance that your monthly payments will stay the same whatever happens to the interest rates.
Discounted Variable Rate
Just like it says, you pay a discounted rate below the Bank's Standard Variable Rate (SVR) for an agreed period of time. This keeps your initial costs down but your repayments will still go up or down in line with changes to interest rates and the SVR.
Tracker rate
A tracker mortgage gives you a rate of interest either above or below the Bank of England Base Rate for a set period or for the life of the mortgage. Any changes to the base rate will be reflected in your monthly repayments, so if it goes up so will your repayments and if it goes down then you'll benefit from the rate going down too.
Capped Rate
With a capped mortgage, you have all the benefits of a variable rate product at a rate that won't go above the level you agreed to. If interest rates fall, so will the rate you pay on your mortgage. However, the rate you pay will be higher than an equivalent discounted rate mortgage.
Cashback
Cashback mortgages provide a lump sum of cash immediately on completion of the mortgage. The amount is a percentage of the overall mortgage, or a set amount.
Things to watch out for
Standard Variable Rate
With most of the above types of mortgage deals, your repayments will revert to the mortgage provider’s Standard Variable Rate at the end of the special period. A mortgage lender’s SVR is usually relatively high, and so it’s probably a good idea to start looking for a new deal at this point. Many providers will offer you a new deal if you ask them rather than lose you as a customer.
Early Redemption Charges
If you think you may remortgage in the next few years, beware of products that carry Early Redemption Charges or Early Repayment Charges. Lenders may charge you if you back out of your mortgage deal within a specified number of years. Some with short term low rates may even include an overhang, which means you may not be able to get out of the mortgage without paying a fee even when the offer period is finished.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
