Mortgage Guide:

Additional Guides: First Time Buyers| Home Movers | Remortgages | Buy to Let Mortgages

What is a Mortgage?

A mortgage is a sum of money borrowed from a bank or building society in order to purchase a property. The money is paid back to the Lender over a fixed period of time together with accrued interest.

What types of Mortgage are there?

You will find two main types of mortgage, these are:

1. Repayment (Capital and Interest mortgage)
2. Interest only (ISA, Pension, Endowment mortgage)

What is a Repayment Mortgage?

With a repayment mortgage your monthly payments consist of both the capital amount borrowed together with accrued interest. Your lender will keep you advised about how much you have repaid.

What is an Interest Only Mortgage?

With this type of mortgage you only pay the interest accrued on the mortgage each month. It is usual for the borrower to take out a savings or investment plan at the same time as applying for the mortgage; this could be an ISA, Pension or Endowment plan. The main fact about this method is that the capital balance of the mortgage stays the same during the mortgage term; only the interest is paid to the Lender each month.

What is a Fixed Rate Mortgage?

With a Fixed Rate Mortgage the amount you repay to the Lender each month stays the same for an agreed period. When applying for the mortgage you may be offered a Fixed Rate from 1-25 years.

What is a Capped Rate Mortgage?

A Capped Rate Mortgage is similar to a fixed rate except when the variable rate drops below the capped rate, should this happen the borrower would make payments based on the lower variable rate.

What is a Discounted Mortgage?

This option is linked to the lenders Variable Rate. The Lender may offer you a discount to their Variable Rate for a specified period of time. With this option there is no certainty what your future payments could be.

What is a Tracker Mortgage?

With a "Tracker Mortgage" the interest rate tracks whatever rate is set by the Bank of England usually with differential. In practice this means that your monthly mortgage interest payments would go up when the base rate goes up and go down when the base rate goes down.

What are Cashbacks?

The Lender may offer you a cash incentive once the mortgage has been taken out. Although Cashbacks can be offered on all mortgage types, they are most common when you apply for a Variable Rate Mortgage.

What are Early Repayment Charges (Redemption Penalties)?

Some Lenders expect you to stay with them for a minimum period of time. If your Lender has offered you a special scheme (Fixed Rate, Tracker, Discounted or Cashback mortgage) they may charge you an Early Repayment Charge if you decide to repay the loan prior to the scheme ending. It is usually possible to find Lenders and schemes with No Early Repayment Charges.

What is an Overhang?

Some Lenders may continue to Charge an Early Repayment Charge after your initial mortgage product has ended. It is possible to find Lenders and products that do not have Overhanging Penalties.

How much Deposit do I need to get a Mortgage?

A minimum deposit of between 5% and 10% of the purchase price is required (correct as at April 2010)

What fees should I expect to set up a Mortgage?

Lenders will want a valuation to be carried out on the property you wish to purchase, the cost of this report is usually charged to you. In addition you may be asked to pay either a Booking or Arrangement fee, these fees are specific to a scheme being offered by the lender. Finally, you may be required to pay a Higher Lending Charge, this is an Indemnity Insurance taken out by the lender.

What other fees should I expect?

When buying a home you would usually use a Solicitor to carry out the legal work, the Solicitor will work on your behalf and for the Lender; you are expected to pay for this work. You may also have to pay stamp duty, depending on the purchase price of the property.

Other costs may include a more detailed survey of the property you are buying and of course your moving costs.

How much can I borrow?

The amount you can borrow will depend on several factors. The lender will decide how much they can lend you based on factors such as: your income, existing credit commitments and your deposit. To find out how much you might be able to borrow, try our online mortgage calculator or contact a Smaart Associates Adviser on 0800 756 9556.

What is Shared Ownership?

Shared ownership schemes vary depending on where you live. In most cases you buy a share of the property with the help of a mortgage; the Housing Association will buy the other share and will charge you rent on a monthly basis.

How should I choose a Mortgage?

It is important to take advice and from an Adviser who qualified and is regulated by the Financial Services Authority (FSA).

Call us on 0800 756 9556 or Click Here to request a call back