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The Ultimate Mortgage Guide

Introduction

Are you planning to get a mortgage, but don’t know where to start? This ultimate guide to mortgages will tell you everything you need to know to secure yourself a mortgage.

 

What is a mortgage?

A mortgage is a loan of money that enables a person, or people to take ownership of a property.

 

Steps to getting a mortgage


Work out what you can afford

Use a mortgage Calculator to get a rough idea of what you can borrow.  It is also a good idea to take a look at your credit score as this will affect how much you can borrow.

Save a Deposit

Work out how to save a deposit. The higher the amount you are able to use as a deposit, the more options you will have available in terms of property prices and interest rates.


Find a house

There are plenty of websites (e.g. Rightmove) that will make your search easier, by filtering to the area you are looking at, your price range and even any features like a garage or local schools, that you might be looking for.

Find a mortgage product that suits you

You can use comparison sites to find a mortgage that suits your needs or seek mortgage advice from a broker that can compare thousands of mortgage products to find the most suitable mortgage for you. This is a very important stage as the right mortgage product can save you thousands.

 

Get a mortgage in principle

This will confirm how much you can borrow from the lender. What is a mortgage in principle?

 

Make an offer

Once you have found the property that you want to make an offer on, you will submit your offer and wait to see whether it is accepted.

 

Appoint a solicitor and surveyor

You will then need to appoint your solicitor and arrange for a survey on the property. Your mortgage company will usually perform a valuation to ensure that they are happy to lend you money based on their valuation of the property.

 

Exchange contracts

If the survey and reports come back without any concerns and the bank is still happy to lend the amount agreed in principle, you will then exchange contracts. At this stage you should arrange insurance for the property.

Completion

Your solicitor will then arrange the transfer of the money from your mortgage lender to the seller and you will arrange to collect the keys and move in.

 

 

Upfront costs 

Make sure you have considered the following costs, so you don’t get a nasty surprise during the mortgage process.

  • Deposit
  • Stamp Duty
  • Valuation Fee (Not all lenders charge this)
  • Surveyors Fee
  • Legal Fees (Solicitors)
  • Broker Fee

 

Ongoing mortgage costs?

There are many different variables that will determine how much your mortgage will cost, including:

  • The amount of money you are borrowing
  • The interest rate you are paying
  • Any mortgage fees
  • The type of mortgage (Interest Only vs Repayment)
  • The number of years you take the mortgage out over

The more money you borrow, the more you are likely to pay in interest rates over the term of the loan.

Mortgage fees vary greatly from one mortgage provider to another, so it is definitely worthwhile comparing different mortgage deals to see which have the best overall costs.

The length of years that you agree to repay the mortgage back over will also impact the cost, as you will pay more interest over 30 years, for example than if you repaid the same amount of loan over 10 years.

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Interest only Vs repayment mortgages

There are two main types of mortgage payment agreements – Interest Only and Repayment.

Interest Only is exactly what it says, it is where you only pay back interest on the loan for an agreed period of time. At the end of the Interest Only period, you will not have paid off any of the loan, so if the mortgage was for £150,000, you would still owe the full amount.

With Repayment mortgages, each month you pay off both interest and capital, which means your loan reduces over time, with the full mortgage being paid off by the end of the loan term.

 

Fixed and variable rate mortgages

Another decision to make is whether to opt for a fixed or variable rate mortgage.

A fixed rate will stay the same for an agreed period of time such as two years. So in that time, you know that your mortgage payments will stay the same each month.

With a variable rate, the interest charges can fluctuate if the bank decides to change the rate. This will usually happen due to changes in the Bank of England base rate but banks can change their variable rate even if the Bank of England base rate is unchanged.

Why do mortgages get rejected?

Rejections can happen for a number of reasons, usually due to affordability and/or a poor credit history.

You will be asked to provide proof of earnings through payslips and it is a good idea to check your credit score.

If you have outstanding loans, a history of struggling to make payments or frequently using your overdraft then this can all affect your mortgage application.

7 Tips to Improve Your Credit Score

 

Residential vs commercial mortgages

Residential Mortgage – Mortgages are available for residential properties (homes that people will live in)

Commercial Mortgage – Mortgages for properties that are used as business premises. A commercial mortgage will usually have higher interest rates, shorter terms and the agreement will be in the business name rather than an individual.

 

Conclusion

You now know the basic steps to getting a mortgage, if you have any questions or require any help securing a mortgage, do not hesitate to get in touch.

 

Question

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