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A Beginner’s Guide to Mortgages

Everyone’s heard that buying a house is one of the most stressful things you can do. But by far the most confusing part of it is arranging a mortgage. As estate agents Cardiff , we’ve put something together to help reduce stress.Most people will have a very steep learning curve from knowing nothing about mortgages, to becoming an expert on them very quickly. Let’s face it, before you buy your first home, knowing the ins and outs of deposits, interest only repayments and whether to use a financial adviser or not aren’t really high on your list of priorities.

That’s why we’ve put together this simple guide to the basics of getting a mortgage.

What’s a mortgage?

Let’s start with the obvious question. Most people probably have a vague idea of what a mortgage is but let’s get the official definition out of the way. It’s a loan taken out to buy property or land that’s ‘secured’ against the property. Essentially, that means that if you can’t keep up the regular mortgage payments, your lender could take back your home and sell it to repay the loan. The majority of mortgages are based on a period of 25 years, although they could be shorter or longer.

Who can you get a mortgage from?

Banks, Building Societies or Specialist Mortgage Lenders can arrange a mortgage for you, but before they can do that a thorough assessment will need to be made to make sure that you’re able to afford the monthly payments involved and that the property is worth that amount that you want to borrow.

How much should the deposit be?

You’ll need to put some of your own hard earned cash into this property; the deposit. The remainder of the cost of the property after that deposit will make up the ‘loan-to-value’ or LTV. This is expressed as a percentage of the value of the property. So, if you put down a £12,000 deposit on a £120,000 house, the deposit is 10% and the LTV is 90%. The more you can put down as a deposit, the better!

How can you repay your mortgage?

There are two parts to a mortgage; the capital (the money you borrow), and the interest (what the lender charges until the loan is paid back).

You can pay back your mortgage in one of two ways;

Repayment – Where the monthly payments include the interest of the loan, as well as some of the amount you borrowed.

Interest Only – Where you only pay the interest due on the amount you borrowed. In this case, you would have to show you will be able to repay the capital at the end of the term.

You could always use a combination of both. It’s best to get professional advice as to which option is best for you.

What’s the deal with Interest Rates?

Here’s where people tend to drop off when you’re discussing mortgages. It’s not the most riveting of subjects, but it’s certainly important!

Mortgages come with fixed or variable interest rates.

Fixed Rate Mortgages set the repayments to one amount for a specific period of time, usually between two and five years, regardless of what interest rates in the wider market are doing. The obvious benefit is that you don’t suffer when interest rates go up, but equally you won’t benefit when they go down. This is perfect if you need to budget yourselves to a specific amount each month.

The interest rate for a Variable Rate Mortgage can go up or down and change at any time. There are a number of different Variable Rate Mortgages, the right one for you will depend on your circumstances. You can find out more from the Money Advice Service.

How much can you afford?

This is the million dollar question!

Try and figure out precisely what the costs of buying and moving will be. You can get an idea of what’s involved here. Lenders will need to see proof of income and outgoings, including any credit cards or debts that you might have. They’ll also ask about your future plans and assess if that could affect your ability to pay off the mortgage. Above all, make sure that you check, double check and triple check the amount that you can realistically afford to pay each month and live comfortably while doing it. If you can’t keep up the payments you may lose your house.

What next?

When you’re ready to take the plunge, whether you approach a lender or an independent mortgage broker, you should receive advice about the type that’s best for you. You’ll be asked a range of questions about what you want the mortgage for, how long it should be and which is most appropriate to your needs. Whether you know a thing or two about mortgages or not, it’s always sensible to take advice from the experts.

With a little bit of forward planning, you should be ready to sit back and enjoy your new home without feeling too uncomfortable when the first mortgage payment leaves your bank account.

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