What exactly is a mortgage?
A mortgage is quite simply a long term loan on a property. The lender takes a legal charge on your property – i.e. they take it as “security” against the money they’ve lent you until it’s all repaid. That way the lender has something to sell in order to recover the money you owe if you get into difficulties, are unable to make your mortgage payments and the property is repossessed.
How do mortgages work?
You make monthly repayments over a period of years, including interest. By the time you get to the end of your mortgage term you will have paid a significant amount in interest , but if you haven’t got the cash to buy a property outright there aren’t really any other alternatives.
What’s the difference between a Repayment and an Interest only Mortgage?
This guarantees that your mortgage is repaid, providing you make all payments in full and on time. Every month you pay back a bit of the money you borrowed plus interest, so when the mortgage term finishes everything’s paid off. This is the safest way to ensure you don’t owe anything at the end and also builds up equity for you as you go along, because your debt’s decreasing, albeit it slowly.
You only pay interest, on what you borrowed, so the payments each month are cheaper. Think of it like a credit card where you only make the minimum payment each month. At the end of the mortgage term you will still owe the same amount as you borrowed when you started.
Most lenders no longer offer interest only mortgages and the ones that do will need you to have a fairly hefty deposit, plus they will want to know exactly how you intend to repay the original amount borrowed. They will usually ask for details of investments / assets that you already have that you intend to use to do this upfront, speculating on house prices or future inheritance are not acceptable.
A Repayment mortgage is the only viable option for the majority of purchasers.
How do I decide how many years I should take a mortgage over?
This depends on your budget i.e. how much you can afford to make in repayments each month. A longer term means that you have more time to pay back your mortgage, so the monthly repayments will be cheaper, however do bear in mind that the longer you have the mortgage over, the more interest you’ll end up paying in the end.
If you’re unsure of what your living costs will be until you’re in your new home you can consider taking a slightly longer term (providing that your lender will allow this). This will keep monthly repayments at a level you feel comfortable with. You can then make overpayments if you find you’ve got money spare once things have settled, as most lenders offer some type of overpayment facility. Mortgage Bureau can help you with this.
What’s the standard term of a mortgage?
Typically this will be 25 years but many lenders now consider longer. The maximum is 35 -40 years although your age at the end of the term will affect how long you can have. This may seem a very long time but if you are in your mid 20’s now a 35 – 40 year term will not take you over your statutory retirement age, so as long as you’re planning to still be working and earning you should still be able to make your mortgage repayments in later years.
Why would someone take out a mortgage and then not pay it?
The vast majority of people who take a mortgage have every intention of repaying it, and do, after all it’s their home, and so losing it would mean huge upheaval.
Sometimes unforeseen circumstances, such as taking out too much other debt, being made redundant, illness or even death can throw these plans off course. That’s why it’s important to be sure that the mortgage you take is not only within your means to repay but that you also have contingency plans to enable you to stay in your home if the unforeseen happens. Mortgage Bureau can help you with this.
If your property is repossessed and the lender doesn’t manage to sell it to cover what you owe, then you will still have to make up the shortfall. Don’t worry too much as repossessions only make up a relatively small proportion of the market. That having been said you do need to be aware of the worst case scenario as a mortgage is a big commitment. You also need to make sure that you make adequate provisions for the “what if’s”.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
If you arrange a mortgage on a property from one of our associated new homes developers, we will waive our fee, otherwise there will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. MAB 7565