Mortgages

What is a mortgage?

A mortgage is a legal loan that you take out on property you will or already own. It allows you to borrow money from a bank and pay it back over time. The bank uses your house as security for the loan. In other words, if you don’t pay back the loan, the bank can take your house away from you by way of repossession.

Why would I want to get one?

If you’re buying a house or refinancing an existing one, then getting a mortgage is probably what will make it possible for you to do so. Most people do not have the liquid funds to pay for the house outright in the early years.

If you already own a house, then getting a remortgage may help you refinance into a lower interest rate or with more favourable terms than what you are on now (like changing from a variable rate to a fixed rate) so best to talk to a mortgage adviser.

What are the type of mortgages?

Bad credit mortgages

Bad credit mortgages are a type of mortgage that can be offered to people who have bad credit.

They are available in two main types:

1. Subprime / adverse credit mortgages – These are mortgages that are offered to people with substandard credit scores and low incomes.

2. Non-conforming mortgages – These are mortgages issued to borrowers who do not meet the underwriting requirements for conventional loans, such as high debt ratios or low loan-to-value ratios so they may need Specialist Lenders.

To find out more about your credit score, you can visit websites such as Experian, Equifax, Transunion or Check My File. Find out which website is the best credit report for a mortgage.

Commercial mortgages

Commercial mortgages are a little bit different from residential mortgages.

Commercial mortgages are different from residential mortgages in that they’re usually backed by a commercial lender, like a bank or credit union, who specialises in lending money for commercial properties. Many residential lenders usually don’t lend money for commercial properties because they don’t want to take on so much risk, if they do, the lender likely has a special commercial mortgage department. So if you need to borrow money to buy a building or land in order to start up your business, you’ll probably be looking for a commercial mortgage.

Commercial lenders also tend to charge higher interest rates than residential lenders do because they’re taking on more risk when they lend money for a commercial property as it’s a smaller market to sell the property to if they were to need to repossess the property.

Most commercial mortgage brokers will be members of the National Association of Commercial Finance Brokers.

Buy to let mortgages

A buy to let mortgage is one that’s designed for people who want to buy properties and rent them out as part of their investment strategy. They tend to have higher interest rates than standard mortgages.

Standard buy to let mortgages are unregulated so they are strictly for investment properties only and the property cannot be occupied by the borrower or their family at any time.

If you rent a property out, you will need to declare your rental income to HMRC.

Second charge mortgages

A second charge mortgage is a type of loan that you take out on the same property you have already mortgaged.

These are also known as secured loans. It’s a way to get more cash out of your home when your current lender won’t give you more, you can’t remortgage or if there is good reason not to leave the current lender, e.g. very low rate on existing mortgage or high penalty to leave.

A big thing to consider with a second charge mortgage is that if you don’t pay it back, the lender can repossess your house and take it away from you the same way they could with the existing mortgage. That means that if something goes wrong and you can’t pay back the money, your home could be at risk.  If the extra debt was unsecured, they could not do that although unsecured debt is often more expensive than secured lending.

Equity release mortgages

Equity release mortgages allow homeowners who have already paid off their mortgages to unlock the value of their homes by borrowing against them (or use an equity release mortgage to clear the current mortgage). They can also be used to refinance a standard mortgage.

In other words, homeowners can take out a loan against the value of their property without having to have a standard mortgage with a set term. Equity release mortgages are ‘lifetime mortgages’ so not repaid until the last borrower passes away or goes into care.

The loan terms vary depending on what type of equity release mortgage you choose—you can read more about that in our article on the different types of equity release mortgages.

By default, most equity release mortgages roll up so the interest compounds over time which eats away at the equity within your house. Some have the option to make monthly payments / overpayments which is a way of controlling the balance of the mortgage in order to stop it rolling up.

As equity release is designed for lifetime, it is a big decision so taking the correct advice from a qualified adviser is vital. Your adviser should be on the FCA register and ideally a member of the Equity Release Council.

Bridging loans

A bridging loan is a short-term loan used to bridge the gap between selling your current property and buying a new one. It’s ideal for people who need to sell their home quickly and move on to something else. It’s also great for people who don’t want to wait for their deposit to go through before they start looking for their next home.

People also use short term loans to buy properties that would not qualify for a standard mortgage (for example, they require fixing up) and then refinance out of them to a standard mortgage when they become eligible.

What are some different kinds of mortgages?

There are many different kinds of mortgages, but the two main categories are “fixed rate” and “variable rate.”

Fixed rate mortgages are exactly what they sound like: your interest rate is fixed for a certain period of time. It’s usually a good idea to get this kind of mortgage if you want to know exactly what you are spending each month without worrying about changes in the rates affecting you. They are fixed for a period of time such as 2, 3 and 5 years.

Variable rate mortgages are loans that change according to market conditions—the higher the market goes (or falls), the more money you’ll likely pay on this kind of loan. Variable-rate mortgages tend to be riskier than fixed-rate ones because they put more pressure on homeowners to manage their finances effectively over time—and if they don’t do so well with budgeting and saving then they could find themselves unable to afford their home payments when rates go up significantly later.

What’s the difference between an interest-only mortgage and a repayment mortgage?

The main difference is that an interest-only mortgage is designed to be paid off in full at the end of its term, while a repayment mortgage requires you to make regular payments throughout your life. If you’re planning on moving out or selling your home before the end of your interest-only period (which can last anywhere from three to fifteen years), then this might not be the best choice for you.

With an interest-only mortgage, your monthly payment will stay lower throughout the entirety of its term as you are not making any payments to reduce the original loan. This means that you’ll have more money available each month as compared to other types of loans like repayment mortgages. However, it also means that if there’s any type of event or problem that would cause you to sell or move out before paying off all of your debt then it could become problematic as your equity in the property will be less.

If taking an interest-only mortgage, you need to think about how you will repay the mortgage at the end. You should always consult a qualified adviser.

Read more: Interest Only Mortgage Vs Repayment.

How do mortgage deposits work?

Mortgage deposits are basically an amount of money that you have to pay upfront in order to secure your mortgage. They start from around 5% of the value of the property, but it can vary from lender to lender.

The reason for this deposit is so that if you fail to pay off your mortgage over time and end up defaulting on it, the lender may need to sell your property. In order to decrease the chance of the loan amount being more than the property, the lender takes a deposit from you. Usually, the more you put down, the better product you qualify for and it sometimes even means the lender will lend you more as they feel there is less risk of them getting their money back with a bigger deposit.

How much will a mortgage cost you?

This is a question that many people ask when they are thinking about buying a home. The truth is that there are many factors that go into determining the cost of your mortgage, but we can help you figure out what to expect.

When you apply for a mortgage loan, there are several different factors that go into determining the final amount you will pay for your loan. These factors include:

• Your credit score and debt-to-income ratio (DTI)
• Your deposit amount
• The type of loan you choose (fixed rate vs. variable rate)
• The length of time you want to take to pay off the loan
• The amount you will be looking to borrow

This is only a guide so to find this out, speak with a professional mortgage adviser.

How do I qualify for a mortgage?

First things first, you need income to get a residential mortgage. You’ll need to be able to prove that you can pay back the loan so an assessment of this income will happen.

You’ll also need to show proof of your identity. This means showing ID such as your passport or driver’s licence, as well as your proof of residency—for example, a utility bill or bank statement with your current address on it.

There will be an assessment of your creditworthiness. This will determine whether or not you’re eligible for the loan amount you requested and how much interest rate they’ll charge on it. They’ll run checks on your credit history and check for any adverse events on there (like bankruptcy, defaults, CCJs, arrears etc). If there are none, then congratulations, this may allow you to get a prime rate if all else is ok.

Who can help me get a mortgage?

The most important thing to know about mortgages is that there are a lot of different kinds. And the kind you get will depend on your situation, your needs, and the type of home you want to buy.

That’s why it’s so important to find a mortgage broker who can help you navigate through all of the options available to you and find the right mortgage for your situation.

Mortgage brokers are professionals who are trained in all aspects of mortgage lending. They can help you understand what kind of mortgage is right for you, whether it’s a fixed rate or variable rate loan. A broker will also be able to give guidance on how much money you’ll need for your deposit, as well as any other fees associated.

To begin looking for you property, websites that will provide great resource are Rightmove, Zoopla and On The Market.

Will you be accepted for a mortgage?

If you want to know if you’ll be accepted for a mortgage, a broker will be the best source of information. A mortgage broker can communicate with several lenders to find out what will and will not work. They will look at your credit, deposit amounts and the mortgage application. Whether you’re just getting started or need some clarity as to what options are available, contacting a mortgage broker. Speaking to a mortgage broker is a great place to start your home loan journey.

Conclusion

A mortgage is a serious financial commitment, so you want to make sure that you understand exactly how a loan works before you apply for one. While mortgages can seem complex, the concepts behind them are fairly straightforward. Once you understand some of the basics, you’ll be able to get a mortgage without feeling lost.