A mortgage is a loan taken out against property or land and is likely to be one of the most important agreements that you will ever make. For the uninitiated, mortgages can be a little overwhelming and confusing – and that is why we have put together all you need to know about mortgages, to help you feel confident and capable at every step of the process.
What Is A Mortgage?
A mortgage is a type of loan where you borrow money from a bank or building society in order to buy a house or flat. The lender gives you the money to pay off the seller (or owner) of the property and then takes ownership of it as security for repayment. You repay the amount borrowed plus interest over a set period of time, usually between 25 years and 30 years.
It is a good idea to take advantage of an interest only calculator here – this can be very useful in grabbing the best deals, and can save you serious cash in the long run.
Types Of Mortgages
There are two main types of mortgages:
- Fixed-Rate Mortgages
As the name suggests, fixed-rate mortgages offer a fixed interest rate for the duration of your loan. They are typically cheaper than variable-rate mortgages but may not be suitable for everyone. If rates rise during your loan term, you could end up paying more than you expected.
- Variable Rate Mortgages
Variable Rate mortgages offer an interest rate linked to the base rate of the bank. As this changes each month, so does your monthly payment. These tend to be more expensive than fixed-rate mortgages but can give you greater flexibility.
How To Choose Your Mortgage Type
When choosing which type of mortgage to take out, there are several factors to consider.
- Interest Rates
You should always compare the cost of different products by looking at how much interest you’ll pay over the life of your loan. Fixed-rate mortgages generally come with lower interest rates than variable-rate ones. However, these also lock you into a specific interest rate for the entire length of your loan. Variable-rate mortgages allow you to choose your own interest rate each month, giving you more control over your finances.
- Loan Amount
When comparing mortgages, you should look at what size loan you want to take out. Larger loans mean bigger monthly repayments and therefore higher costs. Smaller loans can save you money in the long run.
- Term Length
Mortgages come in a range of term lengths, and this can have an impact on your final choice. if you are planning to stay in your home for longer than five years, you might benefit from taking out a shorter-term mortgage. Longer-term loans carry higher interest rates and require larger deposits.
When getting a mortgage, a deposit is required to secure the loan. This is paid upfront and goes towards the purchase price of the property. It’s worth considering whether you can afford to put down a large sum of cash – this will reduce the amount that you have to borrow from the bank, and therefore the overall cost of your mortgage.
- Repayment Terms
Finally, you need to think about how you plan to repay your mortgage. Will you make regular repayments every month, or spread them out over a number of months? Some lenders will charge extra fees if you don’t stick to a strict schedule.
If you’re thinking of buying a new home, talk to your local branch about the best way to finance it.
How Can I Improve My Chances of Being Approved For A Mortgage?
Getting approved for a mortgage is no easy feat. There are many things you can do to improve your chances of being accepted for one, including making sure you meet certain criteria. Here are some tips to help you get started:
- Have Good Credit History
The most important thing you can do to increase your chance of being approved for a mortgage is to ensure your credit history is clean. You should check your credit report regularly to see where any mistakes were made, and try to resolve any issues as soon as possible.
- Get Pre Approved
Before applying for a mortgage, speak to your lender and ask them to pre-approve your loan. This means they will give you an estimate of how much you could be expected to pay back over the course of your loan. Getting preapproved gives you a good idea of what you can expect to spend, so you know exactly what you’re paying for.
- Make Sure Your Income Meets The Requirements
You need to prove that you can afford to buy a house before you apply for a mortgage, and the amount that you are offered will depend on your income. If you earn less than £50,000 per year, you may not qualify for a standard mortgage. Instead, you may be able to get a smaller loan that carries a higher interest rate.
Buying a house is a big decision, but with these few simple steps, you’ll be well on your way to securing a great deal and getting your hands on the perfect mortgage in no time.