What you Need to Know About Mortgages.

What you Need to Know About Mortgages.

by Johnny S

Buying a home is the largest and most significant purchase you’re likely to make in your lifetime. Before you can even think about arranging your mortgage, you will need to know what you can afford to borrow, by which we mean you will need to know what you can afford to repay.  Find out more from us here about where to get a mortgage, the different types of mortgages available, including the exciting Contractors Mortgages and how the whole mortgage application process works.

What is a mortgage?

A mortgage is a loan taken out to buy property or land, to be repaid monthly with interest added on top of the loan at the outset. Most mortgages still run for the standard 25 years, but the term can be shorter or longer to suit your needs. The loan is ‘secured’ against the value of your home until it’s paid off, and you can’t borrow more than your home is worth overall, minus the value of the deposit you make at the outset.

If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back – this is why lenders check your ability to pay back the loan so thoroughly, and why you must comprehensively prove that you can afford the mortgage repayments.

Working out what you can afford is important.

Don’t stretch yourself if you think you’ll struggle to keep up repayments, always budget well within your means and leave a surplus for emergencies / surprises every month.

Make sure when you calculate your monthly income and outgoings that you think about the running costs of owning a home such as household bills, council tax, insurance and maintenance.

Potential lenders will want to see proof of your income and also your monthly expenditure, and if you have any debts.

Lenders will always ask for information about your household bills, child maintenance, outstanding debts, and other personal expenses.

This is because Lenders want proof that you will be able to keep up repayments if interest rates rise.

Be aware, they might refuse to offer you a mortgage if they don’t think you’ll be able to afford it.

Where to get a mortgage.

You can apply for a mortgage directly from a bank or building society, choosing directly from their product range. This is likely to be quite restrictive, and it will tie you in to only using their products. It’s probably only worth it if you’re a really long term customer at a bank who’s going to get a really great deal by taking out a mortgage with them, for example.

You can also use a mortgage broker or independent financial adviser (IFA) who can compare different mortgages on the market, as well as mortgages which are not offered directly to customers and are only available to brokers to consider.

Some brokers look at mortgages from the ‘whole market’, meaning they can offer you full advice on every single product that’s available, while others look at products from a number of lenders only and offer a more restricted choice.

They’ll tell you all about this, and whether they have any charges, when you first contact them – in fact, if they don’t make these points clear to you, they’re in breach of financial services regulations.

Taking advice from a ‘whole of market’ independent mortgage advisor will almost certainly always be best, unless you are personally very experienced in financial matters in general, and mortgages in particular.

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