What does a mortgage entail? Adam Golder, of JW&Co Langleys St Albans, explains...
- Credit: Archant
Buying a house will most likely be the biggest purchase you make in your life, so taking on a mortgage is a significant financial responsibility. It is therefore important to understand exactly what a mortgage entails and the options available to you before you commit yourself.
How much can you afford to borrow?
The first step is calculating this. It pays to save a bigger deposit as it means the more you pay up front, the more chance you have of getting a lower interest rate on your loan. We have created an online mortgage calculator to give you an idea of what lenders may offer based on your income, and roughly how much it will cost each month to repay the loan. Don’t forget that you will have bills on top of the repayment cost each month, so you’ll need to have a close look at your monthly income and expenditure when calculating.
Finding a mortgage provider or a mortgage broker
Once you have done the math, you will need to find a lender or broker that can provide you with the right loan. A good place to start is a comparison website like MoneySupermarket or Money Saving Expert that can give you an overview of the different mortgage products available from a variety of lenders. If you have a particular lender in mind, you can approach the bank or building society directly, or alternatively contact a mortgage broker to discuss a wider range of options available, including those that are not available to customers directly.
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Different mortgage types
The first decision to make regarding the mortgage type will be whether to opt for a repayment mortgage or an interest-only mortgage, or a mixture.
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A repayment mortgage enables you to pay back part of the lump sum (or capital) each month along with the interest. As the name suggests, an interest-only mortgage means you only pay back the interest and none of the original sum you have borrowed. This type is becoming harder to obtain as it leaves borrowers in a large amount of debt at the end of the term, and requires a separate plan to pay back the original loan.
You will then need to decide on the rate of interest for your mortgage. The two main types are a fixed rate or a variable rate, both of which have different advantages depending on how the standard rate of interest changes during the period of your mortgage term.
These are just a few of the different mortgage products available; there are plenty of others, so make sure you discuss the options that would be best for you with your lender or mortgage broker.