A mortgage is a loan from a bank or building society used to buy a property. It is a secured loan; this means that the lending establishment will own part of your home until you have paid off the mortgage in full.
At the time of borrowing you agree a timescale to pay back the amount borrowed, plus interest. Most mortgage periods are calculated over 25 years but you can opt for shorter or longer terms depending on your age and affordability.
You may decide to fix your mortgage term over a period of years. After this you can review or renew. At this point you can usually amend the number of years over which you choose to pay.
Mortgage lenders will require an initial deposit to cover part of the purchase price. The deposit is a percentage of the property’s value and different products require different LTV (Loan to Value) amounts to qualify for certain rates.
If the property you are buying costs £200,000 a 10% deposit would be £20,000. The remaining £180,000 would then be lent to you by the mortgage lender.
If you opt for an interest only mortgage then your monthly repayments will only pay off the interest owed. This leaves the balance unaffected each month. To counter this you will need to arrange to pay off the balance at the end of the term by saving this separately using an ISA, Investment or similar.
A repayment mortgage apportions your monthly payment to the interest AND part of the balance owed each month. By the end of the mortgage you will have paid the balance in full.
Interest rates on fixed rate mortgages do not change for a set period of time (usually between one and five years, though longer terms are possible)
The interest on Variable rate mortgages can change at any time, although they usually rise and fall with the Bank of England base rate.
Discount mortgages usually rise and fall with the lenders standard variable rate for a set period of time.
Tracker mortgages follow the Bank of England base rate but are variable – so if the base rate was 2% then a Tracker at 1% above the base would have a rate of 3%.
Looking for more information, why not check out our New Build FAQ's or contact us directly.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £395.