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A mortgage is probably the biggest financial commitment you’ll ever make, so it’s worth spending some time to make sure you know what you’re getting yourself into.
In this guide you’ll get an overview of everything to do with mortgages – starting at the very beginning.
A mortgage is a loan you take out (usually from a bank or building society) to buy a property or land. The loan is secured against the value of the purchase, which means it can be taken away if you can’t or don’t keep up with your repayments.
The size of the mortgage you will need will depend on a number of factors, mainly the value of the property or land and the amount of deposit you have available to put towards the purchase.
For example, if you are looking to buy a house costing £200,000 and have a £20,000 deposit you will need to borrow £180,000 to reach the purchase price. In this situation, this would be a loan-to-value (LTV) of 90% - we will explain more about what this means later.
If you earn enough money, have a big enough deposit and your credit score is good enough, you’re likely to be eligible for a mortgage.
You also need to be at least 18 years of age, however it’s important to note you may not get one if you’re too close to retirement to pay it off in time.
Self-employed workers can still get a mortgage as long as you can properly prove your income.
Mojo works with more than 90+ lenders and each of them has different rules about who they will lend to - this is why getting advice from a mortgage broker to ensure you get the most appropriate deal is so important. There are also specialist mortgages for people with poor credit scores or histories of financial trouble.
The amount of money you can borrow varies between lenders, however a good ballpark figure is around 4 to 5 times your annual salary, though it could be less and it could be more.
Each lender has different rules and lending criteria and while income is a determining factor to how much you can borrow it can also depend on the following:
What you can afford to repay each month matters more than how much you earn, lenders use a range of factors about your lifestyle to determine affordability and the risk to them as a lender.
You can get an estimate of how much you can borrow using our mortgage calculator and even get a mortgage in principle to show how much you are able to borrow. This is great to show to estate agents to prove your affordability when viewing properties and making offers.
The type of mortgage you will need to apply for depends on your personal circumstances; if you’re a first-time buyer, already have a mortgage or looking to purchase a second property.
As a first time buyer looking to take your step on the property ladder you may be saving towards a deposit or have one ready to go. These types of mortgages are designed to help people get onto the property ladder for the first time, especially if you have a relatively small deposit.
It’s worth researching the different types of loan – such as fixed and variable rates - or speak to one of our advisers to see which is the best type for your needs.
Think about when you switch energy supplier or mobile phone contract to get a better deal - the same principle applies here.
This is when you already have a mortgage for your property, and you switch to a new deal, often with a new lender. Remortgaging could help you save money by getting a lower interest rate and better terms or can be used to borrow additional cash for big ticket purchases such as home improvements or renovations.
A buy-to-let mortgage is a loan you take out to buy a property that you'll rent out to tenants rather than as somewhere to live yourself. These types of mortgages have specific terms designed for landlords and investors so it’s crucial you apply for the correct type if this applies to you.
This is the rate of interest charged on a mortgage, in essence, the cost of taking out the loan. Rates are determined by the lender in most cases, and can be either fixed, where they remain the same for the term of the mortgage, or variable, where they fluctuate with a benchmark interest rate.
A fixed rate mortgage is what is said on the tin - it’s fixed. This means that the interest rate doesn’t rise or fall for an agreed set of time between the lender and borrower - this is usually two or five years but it can vary depending on your mortgage deal.
The main benefit of a fixed rate mortgage is that you know from the start what you’re going to pay each month.
A variable rate mortgage is where the lender is free to change the rate at any point - usually guided by the Bank of England’s base rate - meaning your repayments can fall from one month to the next. There are three main kinds to choose from:
Tracker mortgages that follow the Bank of England’s (BoE) ‘base rate’, which mimics the UK economy. When the base rate rises or falls, your interest follows it.
Standard variable rates (SVRs), which make up the bulk of a lender’s mortgage products. They’re set by the lender, and can change at any time. You’ll most likely move from a tracker or fixed rate to an SVR once the term is up.
Discount mortgages that cut the rate of a typical SVR. For example, a discount rate mortgage could give you a 1.00% discount on the lender’s SVR of 5.00%, which means you’d pay 4.00%. If the SVR went down to 4.50%, you’d then pay a rate of 3.50%.
An interest-only mortgage is where you only pay back interest, not the capital or loan amount.
It means that your repayments are lower, because you're only paying interest. But at the end of the term, you will still owe the full amount of your loan and the lender will expect you to pay it back.
You typically end up paying more over the lifetime of the mortgage however there are advantages to some homeowners and are worth reading up on.
It’s all down to your individual circumstances and affordability amongst other factors. The best way to get an indicative idea of what you can afford is to obtain a mortgage in principle and then speak to a mortgage broker who can talk through your options.
Each mortgage product has slight variations and requirements tailored to suit individual circumstances so it’s crucial that you speak to a mortgage expert to discuss the range of options available.
That’s a really hard question to answer without understanding your individual circumstances, affordability, the type of property you’re after and other important information.
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By answering a few quick questions we will be able to give you an indicative idea of which lenders should be able to lend you and the estimated monthly payments and fees of each product. However, the deals and products from lenders are changing all of the time and our team of expert mortgage brokers will have access to the best deals to suit your individual circumstances.
A mortgage broker will use the information you provide about your lifestyle, affordability, the property you want to purchase and more to pair you with the perfect mortgage product. They are able to access thousands of deals not available directly to the public and will also be aware of specific lender criteria that could increase or decrease your chances of a successful mortgage application.
They also handle a lot of the admin process and act as the intermediary between lenders and customers which can save a lot of time and confusion for those that have never gone through the process before. All mortgage brokers practicing in the UK must be fully qualified in order to give advice and if you find out that advice you have received is incorrect they may be liable to claims.
It varies between different business but typically brokers are paid in three different ways:
Mojo operates using the latter option - we do not charge any fees to customers as we’re funded by the commission from lenders.
We handle all the paperwork and phone calls while keeping you in the loop, so you’ll never have to chase anyone for updates on your mortgage’s progress.
Mortgage lenders ask you to put down a lump sum of cash before they’ll lend you money for a house. This deposit typically has to be worth at least 5% of the property’s value.
e.g. For a £250,000 house, you’d need a deposit of at least £12,500 (5%).
The percentage of the property’s value you borrow after chipping in your deposit is called your Loan to Value (LTV) ratio. A 5% deposit gives you an LTV of 95%, a 10% deposit gives you an LTV of 90%, and so on.
Generally speaking, the lower your LTV is, the better rate the lender will offer -meaning a lower monthly repayment.
A Mortgage in Principle is a certificate that says, in principle, how much money a lender is happy to loan you to buy a house. When you’re ready to make an offer on a property, this will show you’re serious and in a position to buy.
To get a Mortgage in Principle (sometimes called an Agreement in Principle or a Decision in Principle), you’ll have to answer some basic questions about yourself and pass a credit check.
The questions and credit check are designed to see if:
A Mortgage in Principle can be obtained directly from a lender or via a broker such as Mojo!
It absolutely depends on your circumstances and what you need. At Mojo we have a team of experts on hand to provide free advice that can help you understand which is best for you.
The term of a mortgage is how long you’ll be paying it off. It’s typically 25 years, but it can be as much as 40 years or as little as you like, as long as you can afford to pay it during that time.
The term of your mortgage can have an effect on how much you have to pay each month, so it’s something worth considering carefully.
There are pros and cons of having a longer or shorter term mortgage and it’s important that you consider how much each monthly payment will affect your finances when deciding how many years to fix your term for.
Longer term mortgages cost less per month because the repayments are spread over a longer term. However, you pay more overall because you are charged more interest over a longer term.
Shorter term mortgages cost more each month but means the balance is paid off quicker. This means you own your home outright much sooner and pay less in total because less interest is charged.
Put simply, an interest rate determines how much it costs to borrow the cash. Most mortgage interest rates are annual rates, however interest is calculated monthly, but it’s quite simple to work out how much you’ll pay in interest:
Let’s look at a 3% rate on a £150,000 loan:
Further details on how mortgage interest is calculated can be found in this guide.
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