Your mortgage may be the largest and most important financial commitment you ever make, and there’s a lot to think about before choosing one. From the size of your deposit to the length of the term, every mortgage is different.
Over the years, many people have come to us with questions surrounding their mortgage, as they try to understand which option would best suit them and their situation.
So, here are five of the most common questions you ask us about mortgages, along with some answers to get you thinking about what could be right for you.
1. How much can I borrow?
The amount you can borrow is mostly determined by your income at the time of applying. If you are applying as a couple, then the mortgage provider will most likely consider your combined salary for affordability purposes.
Banks and building societies use an “affordability” model when deciding what they will lend. They will consider your income and outgoings and work out whether the mortgage you need is affordable to you.
As a general rule, lenders will typically consider around four times your income, but this depends on a range of other factors. The size of your deposit, credit history, and current debts will also play a part in your ability to secure a mortgage.
2. What deposit do I need?
As mentioned, the size of your deposit will play a part in which mortgage you get. Typically, the smallest deposit you will need is 5%, leaving you with a 95% mortgage. While that may be great for getting onto the ladder, it might not be the best option for you.
That’s because the higher the deposit you can put down, the lower the interest rate is likely to be, and the less interest you might pay in the long run. If you can save a 10% deposit or more, you’ll widen your choice of lenders and deals.
For the very lowest interest rates, you’ll typically need a deposit of around 40%.
A larger deposit demonstrates to a lender that you are less of a risk, and therefore they can offer you more competitive interest rates.
3. What type of deal should I have?
This is one of the largest considerations when choosing a mortgage. There are a few different mortgage deals to choose from, but they mostly fall into two categories: fixed and variable.
A fixed-rate mortgage gives you certainty in your payments. You will benefit from a specified interest rate on your mortgage, which will not change, no matter what happens to interest rates during that period. This can really help with your budgeting and planning.
It’s also great if interest rates rise, as your payments won’t rise alongside them. However, the opposite can happen too, where interest rates fall, and your payment doesn’t.
The other option is a variable-rate mortgage, in which payments will rise and fall depending on general interest rates. Variable-rate deals fall into three different categories:
- Tracker mortgages, which tend to follow a fixed economic indicator such as the base rate
- Standard variable rate (SVR) mortgages. Here, your rate is linked to the lender’s standard rate, over which they have control
- Discounted-rate mortgages, which tend to offer a discount from the lender’s SVR.
There are pros and cons of each type of deal, so do your research when deciding which type of mortgage is best for you. In situations like these, it may be best to contact a mortgage broker so that they can break down your options for you.
4. How long should I take my mortgage for?
The length of your mortgage should depend on your personal situation and how much you can afford. The length of your mortgage will determine your monthly payments and how much interest you will pay.
For example, so-called “marathon” mortgages of 30 years or more are becoming increasingly popular. These lower your monthly payments but increase the time over which you will pay your mortgage. This means you typically pay more interest overall.
Most lenders will let you overpay some of your mortgage each year. Typically, you can repay 10% of your remaining mortgage each year before you incur early repayment charges.
Also, consider your age when choosing the length of your mortgage. Ideally, you don’t want to be paying into retirement, as a significant chunk of your pension and maybe even the inheritance you want to leave could be eaten away by recurring payments.
5. Where should I get my mortgage from?
Lastly, it might be tough to know where to look for the best mortgage deals.
It’s never been easier to take the DIY approach and source your own mortgage, but is it the best method for you? Well, we’ve discussed the benefits of working with a broker instead of taking the DIY route before.
Firstly, working with a mortgage broker simply saves you time and effort. It can take hours to scour the internet for good mortgage deals, but a broker can do it all themselves with your personal situation in mind.
A broker can also help find a lender prepared to agree the mortgage you need based on your unique circumstances.
They will also help you through the buying or remortgage process, ensuring that the transaction goes as smoothly as possible.
Get in touch
If you have other questions that you’d like answered or want to know what could be best in your situation, get in touch. Email enquire@london-money.co.uk or call us at 0207 808 4120 to find out more.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.