There’s such a huge choice of mortgages on the market today that choosing the right one for you can seem like an impossible task. That’s why it’s so important to do your research before even thinking about entering into a mortgage agreement. The simplified introduction below will help you become familiar with the basics, and put you in a good position to seek further advice from our qualified mortgage advisers.
The Basic Facts
A mortgage is a loan you take out to buy property, or sometimes land: what you owe is secured against your property until you’ve paid off the outstanding sum. If you end up in a situation where you can’t pay back the loan, the body issuing your mortgage is entitled to repossess your home or land. Bearing this in mind, you can see why it’s vital to keep up with the repayment schedule of any mortgage you take out.
Which Mortgage Repayment Scheme Will You Choose?
It’s helpful to view your mortgage as consisting of two elements: the capital, which is the sum you originally borrow, and the interest, which is a charge levied by your mortgage lender. The interest charged is usually calculated as a percentage of the overall sum owed. When it comes to working out the best way to repay your mortgage, you can choose from two different schemes.
1. Repayment Mortgages
The first of these is by capital repayment (usually known as a repayment mortgage), where you repay a portion of the capital each month together with that month’s interest payment. In the early stages of this kind of mortgage you’ll mainly be paying off the interest: it’s only later that your repayments will start making inroads into the capital. But after a pre-agreed period of time, often around 25 years, you’ll have paid off both the interest and the capital.
2. Interest-Only Mortgages
With an interest-only mortgage the way you repay is quite different: as the name of the product suggests, it’s only the outstanding interest which is repaid over the term of the loan. But after the interest has been paid you’ll still be expected to repay the capital. Borrowers commonly do this with the proceeds from savings, investment products or by selling other properties and capital assets.
What’s The Right Kind of Mortgage For Your Circumstances?
Once you’ve made a decision about whether you’d like an interest-only or repayment mortgage, you need to decide what kind of mortgage best suits your circumstances. Though the large choice of mortgage products on the market is confusing, it essentially represents variations on three themes.
When you choose a fixed rate mortgage, you’ll know in advance exactly how much you need to repay each month, whereas with a variable rate mortgage your monthly repayments will fluctuate according to the Bank of England’s bank rate. Finally, if you opt for a flexible mortgage, you can vary the size of the instalments you pay to suit your finances, and sometimes even take a break from payments altogether.
Find Out More Or Book A Session With Our Advisers
By now you probably have some idea of the kind of mortgage best suited to your professional and financial situation. Before using our mortgage calculator to find out how much you can borrow, visit the General Information section on this site to find out more about how to evaluate the different types of mortgage. Pretty soon you’ll be ready for a one-to-one or telephone consultation with our friendly mortgage experts.