Should you opt for a fixed rate mortgage or a tracker mortgage? What are early repayment charges? Applying for a mortgage can be a scary prospect, and the amount of money is substantial, so having an idea of the basics before you buy a home is essential.
How Much Can You Borrow?
The amount that you can borrow from a lender will depend on your debt levels, your annual income, and your fixed outgoings. These are all taken into account, since you repay a mortgage over several years, and the lender wants to make sure you will continue to repay them.
How Long Can You Borrow from a Lender?
The term of your mortgage can vary, but the most common period tends to be 25 years. The shorter your repayment term, the higher the monthly instalments will be, since you have fewer years to repay your loan. However, the shorter-term mortgages mean less interest in total, as you pay the debt off in a shorter time. At the end of the residential mortgage term, you will have to have repaid the entire loan.
Your Home Will Be Used as a Guarantee
Lenders typically require that your mortgage is secured against your home, to warrant that they won’t lose their money if you are unable to make repayments. Should you for any reason fall behind on repayments, the lender can make you sell the house to settle your debt. Should you sell your house before you have finished paying off the mortgage, you can use the sale money to pay it off, and then keep the difference. The lender holds the title deeds as a guarantee, and they lodge their interest in the property with the Land Registry.
What About Additional Mortgage Costs?
There is a range of additional fees that come with taking out a mortgage, and these can add up to thousands. The costs include legal fees, arrangement fees, and a valuation survey of the property. Sometimes mortgage lenders may pay these fees for the borrower.
If you plan on applying for a mortgage that has a high loan to value ratio, you could face being charged an indemnity fee which will be used to pay for the cost of the insurance on the loan. Most of the time, mortgage lenders are prepared to add the fees to the total of the mortgage so that you can pay them off with your monthly repayments. The lenders will usually tell you what the costs are upfront, but it is up to you to ensure you are acutely aware of them, to avoid any nasty surprises.
You may be required to pay for certain early repayment charges, should you be in the position to settle the mortgage early. The early repayment fees can be relatively costly if you have a fixed rate or discounted mortgage.
What About a Deposit?
You will be required to pay for a portion of the property upfront, and lenders typically require a 10 percent deposit of the value of the property.