If you are a first time buyer, getting a mortgage can seem daunting. We help you to work your way through the mortgage maize.
Finding the right mortgage can be daunting but it’s not as complicated as it looks. Some people are lucky enough to be able to buy a house with cash but the majority of buyers need a loan for such a large purchase.
A mortgage is a loan secured on your property. If you fail to make repayments on the loan the mortgage provider will use your house to recoup its debt.
A mortgage is usually paid back over 25 years. Some providers will spread over a longer period and you can pay it over as short a period as you wish. If you pay it over a shorter period the monthly payment will be higher but the total amount paid will be less. If you pay of a longer period the monthly payment will be lower but the total amount paid will increase.
There are two main types of mortgage
- A repayment mortgage means you pay back part of the interest and part of the debt every month. At the end of the mortgage term e.g. 25 years, you will have paid back your entire debt and the house will be yours.
- An interest only mortgage means you only pay back a portion of the interest on the loan every month. You do not pay back any of the initial loan amount. At the end of the 25 years you will still owe the initial amount that the mortgage company lent you. Therefore you have to save independently over the 25 years in order to pay this off.
Different mortgage products
- Fixed rate: A fixed rate mortgage has an agreed rate for a fixed period such as 5 years. This can be useful if you want to know exactly what you are going to pay. You may over pay if bank base rates are lower than your fixed rate, however you may save a fortune if base rates increase.
- Discounted: A discounted mortgage will be an agreed % below the mortgage provider’s standard rate.
- Tracker: A tracker mortgage will follow the banks standard rate up or down.
- Capped and collared: This type of mortgage has an agreed lower and higher interest rate.
These different types of mortgages will have different positives and negatives. A good mortgage adviser will explain all the finer points and help you decide which one is best for you.
Other things to be aware of
- There will be a fee attached to any mortgage so the interest rate is not the only piece of the jigsaw. You must include any fees in your calculations to see which product is best.
- If you have a discounted rate for a period of time it is likely there will be some form of tie in. If you decide to pay off the mortgage early there may be a charge so make sure you are aware of this.
- You will be required to pay part of the mortgage in the form of a deposit. This will be a minimum of 5% of the purchase price of the property but can be considerably more depending on the mortgage provider and the type of mortgage you choose. Either way you should factor this in to your calculations.
Information you’ll need to have
A mortgage company wants to know that you are who you say you are and that you can afford to pay back the money they lend you. As such they will need to see certain documents. These may include:
- Passport, drivers licence
- Recent utility bills, council tax bills
- Pay slips or proof of income for anything up to 18 months prior to your application
- Details of your outgoings and any outstanding credit
All these factors will help the mortgage company decide whether to offer you the funds. Any delays in providing such information might result in you losing your dream house so start collecting it now.
Arranging a mortgage can seem daunting but if you prepare properly and get the right advice you won’t go wrong.
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