Want to step onto the property ladder, but don’t know what to do? We’ve put together a comprehensive guide to mortgages that will get you going.
It’s perfectly normal to be overwhelmed with mortgages. From APR to fixed rate, tracker, and all other types terms, they’re always easy to understand. Particularly if you’ve not had any significant debt prior to.
We’ll walk you through everything starting with what a mortgage is what it is, how to obtain one and which one could be most suitable for you, with links to other guides so that you can keep learning. Finding the perfect mortgage for your needs doesn’t have to be difficult!
How do I get a loan?
A mortgage is basically it is a loan can be used to purchase a home. Most people don’t have all the money to pay for the asking price in cash. Therefore, they make the deposit (usually at less than 10 percent of the asking price) and then submit a mortgage application (like an institution like a bank or a building society) to pay the remainder.
What are the steps to get a mortgage?
Mortgages are essentially a huge loan to your home which you pay back on the basis of a monthly schedule. The lender of your mortgage will determine a suitable monthly repayment amount which will also include the interest they charge for the mortgage.
The majority of mortgages have a repayment period of about 25 years, however you can choose to get them for shorter or longer lengths of duration. This signifies that the entire amount of the loan, which includes the interest rate, is divided over the time it takes to repay it. This is the amount you pay each month.
How to calculate your mortgage
Here’s an example of an amortization mortgage:
If you’re buying an investment property valued at £200,000, you’ll likely require a down payment of at least £20,000.
This means that you require an amount of loan equivalent to £180,000.
If you were to sign a contract that had 2% interest, the amount of interest would be £48.922.
The total amount that you would have to pay is £228,882.
If the tenure for your mortgage is 25 years long, your monthly payment amount is £763.
(Mortgage calculations can be quite complex, but generally the interest calculation is carried out by calculating the percentage of the balance you owe every year for the complete time period of your mortgage.)
It is possible to use an online mortgage calculator to figure out what your monthly payments could be. Because interest is compounded, paying it off faster typically means paying less interest.
If you are able to manage a larger monthly mortgage payment and you can afford it, you will be able to pay a lesser total.
Returning to the above scenario, suppose you were to pay an amount of £180,000 and 2% of interest spread over fifteen years, instead of 25 you’d be paying £1158 per month, however the total amount of repayment would be £208,497.
This is a savings of £20,385.
It’s really about your budget – even if you’re unable to afford the cost of a monthly payment that is higher the majority of lenders let you overpay the amount you want to pay without costs (usually 1percent or less of your total) during the course of the year. This means you can lower the amount of your mortgage.
Repayment mortgages vs. mortgages with interest only
It’s not common to find an interest-only mortgage right now since more lenders are focusing on providing repayment mortgages.
Repayment mortgages guarantee that the monthly installments are credited to the value of the property as well as the interest you have to pay. At the conclusion of the term you own the property and have paid off the interest in total.
An interest-only mortgage is simply that – you only pay interest. This means that you do not put any equity into the property, and at the conclusion of the loan period, you do not have the property but must pay the lender the entire amount. This is usually only available for homes that are bought to let.
What is the best mortgage I can afford?
The mortgage you receive will depend on a number of aspects: Mortgages take risk on you because they are offering you a large amount of money, and they need to believe that you’ll repay it. That’s why they run affordability tests for mortgages.
While 10% is typically the minimum deposit amount (unless you’re using the aid to Buy scheme, or certain mortgages in which the minimum is 5%) the fact that your deposit is greater than the property’s price puts you in a much better position. This is because the lender will be required to offer you less in addition, it’ll become simpler to pay back the loan.
A larger deposit will open the door to more attractive offers, which will save your money.
The majority of mortgage lenders operate with the 4.5 rule, which means they’ll only loan the borrower 4.5 times the annual earnings. This could make it difficult to purchase a home on your ownas opposed to purchasing in a couple, or with a family member/friend. However, this doesn’t mean the process of getting a mortgage difficult however, you must consider it as a guideline when looking at homes.
If you’re purchasing with another person and your income is £50,000 annually You can apply for a loan of £225,000. If you have a deposit at 10% it is £22,500. Therefore, the property you are thinking of purchasing should be priced at £247,500.
Underwriters of mortgages (people who review the mortgage you are applying for) might take looked over the last six months of your account to determine if they have any issues. Be sure that your accounts appear well-maintained, without any fees for overdrafts, huge spending, etc.
How to obtain a mortgage
We are a comparison site we strongly recommend looking for the most competitive rate. You’ll see a variance in the amount of interest charged, as well as the time the mortgage is fixed for (this means that you’ll pay the same fixed amount each month).
But, if you truly enjoy your bank or building society, they could offer great deals for existing customers, so you should inquire regarding their mortgages.
It is also possible to consider an agent for mortgages This is a person who will evaluate the various offers available that are suitable for you. As a specialist , they could have better rates than users of comparison sites. A mortgage broker typically gets paid commission by the lender you decide to use, but there could be fees as well make sure you examine.
How do you get a loan
The process of applying for a mortgage ought to be relatively easy, but you will need certain details and documentation in advance.
You’ll have to show proof of your identity, therefore passport or driver’s license and an utility bill are good to have. It is also necessary to provide your annual earnings and you’ll need a P60 or a P60 from your workplace, the last 3 months ‘ payslips as well as bank statements from the last three months will assist in this. If you’re self-employed You may be required to present an SA302 income tax returns.
It is possible to confirm these details with your lender before making an appointment. They will let you know if they require anything else.
The lender will go over the application with you and will likely require information regarding the property, including what the selling price is, and perhaps some details about your expenses.
Be sure to ask plenty of questions regarding your mortgage that you are considering, such as the total repayment sum, rules regarding overpaying and the fees or charges.
After you’ve completed the application, lenders will conduct an assessment of your credit, look over the data and make an appraisal of your property. This will make sure that the home you’re interested in purchasing is worth the price you’re seeking.
In general , processing a mortgage application may take anywhere from 18 to 40 days, however, it could require longer.
A loan in principle
An initial mortgage (also known as mortgage in accordance), is an offer you can get ahead of looking at properties. It is a sign that the lender is willing to provide you with a mortgage and proves to the seller that you’re committed to moving forward and that you can actually afford to purchase the property.
Costs and charges for mortgages
If you consider the amount of amount of interest you’ll have to pay on quite a large sum of money, you could be forgiven for thinking that it was the major expense. However, most mortgages have set-up costs.
It’s worth looking at these and adding these costs into your budget. Certain offer the option to add the fee onto the mortgage’s total value but you’ll pay an interest rate on the loan!
On the other hand certain mortgages Belfast offer cashback options, or they can waive the cost if you’re already an existing bank customer. Make sure to balance the additional charges against how much your mortgage will cost. When you’ve already got a fantastic offer on a fixed rate over four years, and it’s a £250 setup fee, it could be an option better as opposed to one with no set-up fee and a higher interest.
What happens after the fixed rate expires?
If your fixed rate mortgage period is over (usually between 1-5 years depending on the type of mortgage you choose) you’ll be put on SVR, which is SVR, which stands for Standard Variable Rate. It is usually more costly and lenders can alter its SVR any point.
The good thing is that you can refinance in the near future as lenders typically gain from people not wanting to endure the stress of remortgaging and negotiating a new deal every couple of years.
Remortgaging simply means that you’re transferring your home mortgage into a different deal. This could happen with the same lender or with a different one. If you’re at the exact same mortgage company however, you are just signing the new one there is no need be paying for the conveyancing.
If you’re remortgaging an entirely new lender, you’ll be required to pay for fees for solicitors. This new loan will take over the previous lender, and you’ll are in agreement. Your mortgage is likely to be lower since you’ve completed the repayment of a portion in your fixed rate.
Be aware of when your fixed rate expires to be able to search for a bargain.
My mortgage will be affected if I relocate?
If you’ve taken out an installment loan that lasts for twenty-five years that does not mean that you must remain in the house until the mortgage is completed. If you decide to sell your home then the balance on the mortgage will be paid through the sale, and then it is transferred to the mortgage company and you then can keep whatever remains from the sale to be paid.
In the ideal scenario, if you’ve completed the repayment of a portion of your mortgage and the property’s value has increased over the years you’ve resided there, you’ll be able to use the proceeds from the sale to put down a deposit for a property.
If you’ve not paid off any amount, and your home isn’t increasing its value over time, you might have negative equity. This means that your home has a value lower than what what you purchased it for. In this case, you might be owed money by the mortgage company when you sell the property and you might not have enough money to make an investment in an investment property. If that’s the case, think about whether you should sell the property at this point or if you could modify the property, which could make it more valuable.
In an overview
Finding the best mortgage that is right for you is essential the deal you choose is contingent upon how much you earn, your cost of the home and the amount of your down payment. There’s no reason not to refinance and stay up with what you’re paying back in order to accelerate the mortgage payment and reduce your expenses. Do not just choose the first mortgage you come across and, if you’d like more advice, speak to an agent for mortgages, who can find the best deal for you.