Whether you’ve just put in an offer on your perfect home, buying a property in order to rent it out or are re-mortgaging your home, the next step is to find the right mortgage to suit you. There are a throng of mortgage brokers out there vying for your business, but which one do you choose? Choosing the right mortgage is one of the biggest decisions you will make in your life time so getting it wrong could end up costing you thousands of pounds. Here are a few helpful tips to get you through the process.
First things first! How much can you afford on a monthly basis? Work out your take home income and deduct your expenditure including monthly commitments, food, entertainment and a little extra for luxury items… You want to be sure you can comfortably afford the repayments.
Before you commit, take time to think about your future plans. Are you planning to start a family or looking to retire? This could affect how much you can afford in the future.
A repayment mortgage is one in which your monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest, so that the amount borrowed decreases throughout the term and by the end of the loan term has been fully repaid.One advantage of a repayment mortgage is that it removes the risk of having an investment (as exists in an endowment mortgage), the performance of which is dependent on the stock market. The borrower is also less likely to suffer from negative equity because the mortgage balance will be reducing month on month.
An interest-only mortgage gives you cheaper monthly payments on your home loan but you are not actually paying back any debt. At the end of the mortgage term you will still owe your lender the amount that you borrowed, and now you need to have plans to repay this at the start of the loan.
As the name suggests, a fixed rate mortgage has an interest rate that is fixed for an initial term – say 2, 5 or even 10 years. This means your monthly mortgage payment will remain the same over the period, giving you certainty and allowing you to budget for a major item of expenditure. At the end of the fixed rate period, the mortgage usually transfers to the lender’s variable rate – although it makes sense to shop around at this point to secure the best deal.
Buy-to-let (BTL) mortgages are for landlords who buy property specifically to rent out. They are usually more expensive than normal mortgages, but they could help you become a property investor.The minimum deposit for a buy-to-let mortgage is usually a quarter (25%) of the property’s value (some lenders offer deals with a 20% deposit; others want a 40% deposit).
Mortgages can be a minefield of paperwork and hidden clauses! Make sure you read and understand exactly what you’re signing before you sign it. This may be stating the obvious but you’d be surprised how many people don’t! You don’t want to be stuck in a situation that could easily have been avoided.
APR is a term you will see on several different lending products, including mortgages. Short for Annual Percentage Rate, it’s a legal requirement for APR to be shown on products where you borrow money in order that an easier and fairer comparison can be made. The APR is designed to help you shop for loans by making them more comparable.