When you encounter the mortgage market, it’s a confusing experience. There’s much use of terms like capping, repayment mortgages, trackers, APRC and a whole host of other bewildering jargon. But when you’ve grasped the basics, mortgages really aren’t so hard to understand, as this guide aims to illustrate.
Capital vs Interest
There are two essential components to any mortgage. The first is the capital, this being the sum of money you borrow to buy your new home. The second component is the interest, which is the money charged by your mortgage lender as payment for the service of providing the capital.
Capital is quoted as a fixed sum of money, whereas interest is always charged at a percentage of the amount borrowed. This percentage is known as the interest rate. Since it’s the interest rate which accounts for most of the cost of taking out a mortgage, it’s important to secure a deal that represents good value to you.
Mortgage Repayment Schemes
The first thing you should think about before applying for a mortgage is the kind of repayment scheme you prefer. You have two choices: put your monthly repayments towards paying off the interest and the capital, or just repay the interest. If you choose an interest-only mortgage you’ll need to work out how to repay the capital, which will become due at the end of your mortgage term.
How Interest Is Calculated
This is something you can choose, too. Once again you’ll be faced with two main options: a fixed or variable rate. With the first alternative comes the security of knowing exactly how much your monthly repayments will be for a predetermined length of time. But choose a variable rate mortgage and you could benefit from reduced payments when interest rates fall.
Some mortgage deals come with helpful add-ons and flexible conditions. A typical example is the flexi mortgage, which enables you to choose how much to pay each month: some of these products even let you take a break from payments at times of particular financial strain, such as after you’ve had a baby. Or you may be able to link your current account with your mortgage account, so that any credit balance is offset against the outstanding mortgage.
Stamp Duty Land Tax (SDLT)
Strictly speaking this isn’t a part of your mortgage costs, but it is a predictable and unavoidable charge whenever you buy a home for more than £125,000. Visit this page to work out how much stamp duty land tax you could be liable to pay.
The right mortgage for you depends upon a favourable combination of the above factors, which in turn is dictated by your personal circumstances. Zing’s advisers will help you choose the right deal for you based on your financial situation, plans for the future and personal preferences. With thousands of mortgages to choose from, we’re sure to find you the deal you want at the right price.