Buying a property is likely to be the biggest purchase you make during your lifetime, and choosing the right mortgage is vital. A good mortgage will help you buy a home and can even save you thousands of pounds. When it comes to finding the right mortgage for you, there is a lot to consider and knowing what to look out for can be difficult.
This guide covers everything you need to know about mortgages, including what they are, where to get them and the different types of mortgages available.
What Is A Mortgage?
Unless you are lucky enough to have a huge amount of money in the bank, it is unlikely that you can afford to buy a home outright and will instead look to use a mortgage. A mortgage is a loan from a bank or building society which can be used to purchase a property or land. The loan amount is then paid back to the lender plus interest over a set period of time.
Typically, mortgages have a term of 25 years, but it is possible to get them for longer or shorter periods. The mortgage will use the property as security until the total amount has been paid off in full. This means that if you fail to make your mortgage payments, the lender could repossess your property to cover the debts.
Tip: It is possible to get a mortgage on your own or jointly with one or more other people. If you choose a joint mortgage, you will both be responsible for the repayments and will both own the property.
What Is A Mortgage Deposit?
When you want to use a mortgage to buy a home, you are required to pay for part of the property outright. This is known as the mortgage deposit and is shown as a percentage of the property’s overall value. For example, if you purchase a house for £300,000 and the deposit is 10%, you would have to pay £30,000 upfront.
The mortgage provider is then lending you the remaining amount, which is known as the loan to value (LTV). In this example it would be a 90% LTV mortgage, which would cover the £270,000 that is remaining. This is the amount that you would then owe to the lender and pay off with your mortgage repayments plus interest.
Generally, the higher deposit you can pay upfront, the lower the interest rate will be on the remaining amount. This is because, with a lower LTV mortgage, there is less of a risk to the lender.
Where To Get A Mortgage?
Mortgages can be applied for from a bank or building society, and most major lenders will offer a range of different mortgage products. You also have the choice of using a mortgage broker or an independent financial advisor (IFA). These specialists will compare various mortgages on your behalf to help you find the best option.
It is possible to receive a mortgage without seeking advice from a professional, and these are called execution-only mortgages. The lender will be required to write to you to confirm that you have not received any advice and that the mortgage chosen has not been assessed to determine if it is suitable for your situation.
Many mortgage brokers and IFAs have access to mortgage products that are not available directly to customers. This means you can sometimes get the best deals by using one of these services.
What Are The Different Types Of Mortgages?
Lenders offer various different types of mortgages, all of which are designed for different financial circumstances. It is essential that you choose the right type of mortgage for your situation. Some of the most popular include:
- First Time Buyer Mortgage: These are designed if you want to buy a home but have a small deposit and never owned property before.
- The Right To Buy Scheme: Created to help you buy your council house for a discounted price. The discount can be used as part of the deposit.
- Help To Buy Mortgages: These mortgages use a government scheme to help improve your chances of buying a home if you have a small deposit.
- Guarantor Mortgages: A guarantor mortgage can help you buy a property with a small deposit and having a friend or relatives name on the mortgage as a guarantor.
- Mortgages For Bad Credit: Some lenders specialise in offering mortgages to those who have had previous financial difficulties.
- Self Employed Mortgages: If you have an income that is hard to prove to lenders, such as running your own business, then a self-employed mortgage might be for you.
- Mortgages With No Deposit: These are rare to find, but it is possible to get a mortgage with little to no deposit if you have a guarantor.
- Commercial Mortgages: A commercial mortgage will help you to buy a property for your business or as a business investment.
- Mortgages For Older Borrowers: Most lenders will specify a maximum age for lending, and specialist mortgages for older borrowers can help you get a mortgage past this age.
- Buy To Let Mortgages: If you want to purchase a property to rent out, then you will need a buy to let mortgage.
- Second Charge Mortgages: A second mortgage is used if you want to buy a property other than your main place of residence, for example, for a holiday home or as an investment.
- Equity Release and Lifetime Mortgages: These can give you cash in return for equity in a property you already own, they are then paid off when the property is sold.
The majority of these mortgages are repayment mortgages. This means the monthly repayments are paying off both the outstanding balance and interest charged, and at the end of the term, everything will be paid. You could also get interest-only mortgages, where the monthly repayments only cover the interest charged. These mean that your balance never reduces and at the end of the term the whole balance will need to be paid.