What is a mortgage?
Brian McCarthy, ESPC Mortgages adviser, explains exactly what a mortgage is and talks us through all of the key mortgage criteria.
In simple terms a mortgage is a loan where an individual borrows money, usually used to buy a home, pays interest and is required to repay the loan over a period of years.
The loan is secured on the property and can be repossessed in the event of the borrower defaulting on the loan so careful thought is required before embarking on such a commitment.
Don't just look at the price alone
There are a large number of lenders offering mortgages and as a prospective borrower you should consider a number of factors to obtain the best arrangement. Price is not the only consideration.
Factors to think about include:
- What type of mortgage is required?
- Are you looking for a fixed, variable or capped rate?
- Do you need flexibility in terms of payment holidays or making overpayments?
- What interest rate will be charged, along with arrangement/booking fees and possible valuation costs?
- Does the lender charge interest on a daily basis or some other basis?
- The follow on rate charged at the end of a preferential rate period should also be considered.
There can be a large difference between different lenders and this may impact your decision of lender.
How long should you take a mortgage for?
You should also think about how many years you plan on taking to repay the mortgage. 25 is the most popular but a 20 year mortgage will make the total amount of interest you pay less, whilst a 30 year mortgage would take longer to repay but monthly costs would be lower.
The influence of interest rates
The initial interest rate charged is largely dependent on the loan as a percentage of the purchase price/valuation. The lower the percentage the better rate will be available. So for example you will likely get a lower mortgage rate if you have a 30% deposit than if you have a 20% deposit. Sometimes a small increase in the deposit can mean a borrower can access a lower rate. Lenders do differ on the trigger rates where they charge lower rates.
Get independent mortgage advice
Where a mortgage is being considered it is important to obtain independent mortgage advice on the best option for your own requirements. It can be helpful to obtain an agreement in principle to ensure lending facilities are available and you are comfortable with the likely mortgage costs before progressing interest in a property.
It is also prudent to ensure that you have an excellent credit history as this will impact on the availability of a mortgage. Even a small blemish on your credit record can cause problems.To find out more, why not visit the ESPC Mortgages team?
Want to know more?
Brian McCarthy is a Financial Planning Consultant who aims to help those who need help finding mortgage solutions. He works with clients to find the mortgage that best meets thir individual needs. You can call him on 07956 969 859 for more information.
Read some of Brian's other articles:
- What is shared ownership?
- What is shared equity?
- Can you tell me about income replacement cover?
- New developments for first time buyer?
The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.