The Loans Network

Mortgages

A mortgage is different from most other types of loans as it is secured against the house that you propose to buy. In effect the lender, usually a bank or building society, buys the house outright from the seller, and you then buy the house from the mortgage lender month by month in the form of mortgage repayments. This is a very simplistic view, as the lender will in general only provide you with a loan up to a certain percentage of the value of the house, and the monthly repayments will include interest charges.

With current house prices being so high the opportunity for the new homeowner actually securing a mortgage on a property may seem unlikely. So, with this constant rise in house prices over the last five years mortgage lenders have had to compromise in the way they calculate the maximum financial aid they can provide the borrower. This was originally calculated by multiplying the borrower’s annual salary by three but this would still leave prospective home-owners short of the sale price. Therefore banks and building societies, the typical financial providers who dictate the mortgage sector, are now offering mortgages that are four or five times the borrower’s salary. They are also providing longer repayment terms so that home buyers have a greater chance of acquiring a property.

Finding the right mortgage for your circumstances as well as the amount that you must borrow can be confusing, with such a large array of mortgages on offer from a number of different lenders. However, provided you can raise the required down payment, and can provide evidence that you have a satisfactory income to meet the mortgage repayments, you should find that arranging a mortgage is an easy and fairly straight-forward process.

There are a wide variety of mortgages available, and deciding on which one to go for can be difficult and confusing: Below is a list as to what choices you, the home buyer, have when meeting with a mortgage advisor:

• Fixed Rate Mortgage
o The initial rate charged throughout the agreed period of the loan remains the same i.e. you pay the same amount each month for that set period.

• Cashback Mortgages
o The lender provides you with a cash lump sum on completion of the deal. The amount is expressed as a percentage of the mortgage amount.

• Capped Rate Mortgages
o The amount of interest charged will not go above a set maximum for the period of the cap. There is also the added benefit of lower monthly repayments if interest rates fall below the capped rate.

• Discounted Rate Mortgages
o For a set period of time the monthly repayments are reduced from the start of the mortgage as the lender provides a discount on the standard variable rate.

• Variable Rate Mortgage
o This has an interest rate that goes up and down, dictated by the lender, with your monthly repayments changing accordingly.

• Current Account Mortgages (CAMs)
o They allow you to run all of your finances through a single account to provide maximum efficiency.

• Offset Mortgages
o This product allows you to offset your borrowings against your savings, so you only pay interest on the reduced sum.

• Flexible Mortgages
o They are designed to enable overpayments, underpayments and payment holidays as and when you want. Interest is calculated on a daily basis which in turn could lead to large savings being made.

• Adverse Credit Mortgages
o These products are intended to help those with poor credit records.

• 100% Mortgages
o Some lenders will lend you 100% or more if you have no deposit but rates and fees will be higher than standard.

• Buy-to-let Mortgages
o A special type of mortgage designed for the purchasing of a property in order to let privately.

• Base Rate Tracker Mortgages
o This product is unlike ordinary standard variable rate mortgages as they ‘track’ or follow the Bank Base Rate set by The Bank of England.

• Non Standard Mortgages
o These are intended for borrowers that have damaged credit records, who need to put down a relatively large deposit.

The terms of your chosen mortgage will vary between lenders, so you should check to see whether there are any penalties for making early repayments or switching mortgages altogether. Also be sure to check that the interest rate on the mortgage is what you have agreed and not just a special introductory rate that will change after a set period of time.