Tritton House,
14 Bath Road,
Swindon, Wiltshire
SN1 4BA
Welcome to our Mortgage Guide, need some help planning your mortgage? Click on a subject below for more information.
FAQ |
Mortgage Guide |
What is a Mortgage?
A mortgage is a sum of money borrowed from a bank or building society in order to purchase a property. The money is paid back to the Lender over a fixed period of time together with accrued interest.
What types of Mortgage are there?
You will find two main types of mortgage, these are:
1. Repayment (Capital and Interest mortgage)
2. Interest only (ISA, Pension, Endowment mortgage)
What is a Repayment Mortgage?
With a repayment mortgage your monthly payments consist of both the capital amount borrowed together with accrued interest. Your lender will keep you advised about how much you have repaid.
What is an Interest Only Mortgage?
With this type of mortgage you only pay the interest accrued on the mortgage each month. It is usual for the borrower to take out a savings or investment plan at the same time as applying for the mortgage; this could be an ISA, Pension or Endowment plan. The main fact about this method is that the capital balance of the mortgage stays the same during the mortgage term; only the interest is paid to the Lender each month.
What is a Fixed Rate Mortgage?
With a Fixed Rate Mortgage the amount you repay to the Lender each month stays the same for an agreed period. When applying for the mortgage you may be offered a Fixed Rate from 1-25 years.
What is a Capped Rate Mortgage?
A Capped Rate Mortgage is similar to a fixed rate except when the variable rate drops below the capped rate, should this happen the borrower would make payments based on the lower variable rate.
What is a Discounted Mortgage?
This option is linked to the lenders Variable Rate. The Lender may offer you a discount to their Variable Rate for a specified period of time. With this option there is no certainty what your future payments could be.
Flexible mortgage
A flexible mortgage gives you the ability to overpay or underpay or take a payment holiday. You tend to pay a slightly higher interest rate for a flexible mortgage so it normally only pays to take a flexible mortgage if you actually do require specific flexible features. Otherwise, you may find that a traditional mortgage may offer some of the flexible features that you require – the ability to make overpayments for eg - and at a lower rate.
Offset mortgage
With an offset mortgage, your savings pay off the mortgage. For eg, your mortgage is £100,000 and you have £25,000 in savings, so you only pay interest on the difference of £75,000. As with a traditional mortgage, you still pay the mortgage lender each month but your savings work as an overpayment. Some offset mortgages have a current account attached. You generally pay a higher rate for an offset mortgage, but its benefits include being able to hopefully pay off your mortgage more quickly than with a standard mortgage, making use of a tax efficient method if you are a higher rate taxpayer, not to mention making good use of your savings. It’s important to note that whilst the offset sounds attractive and modern, it is really only of benefit to borrowers with substantial savings.
What are Cashbacks?
The Lender may offer you a cash incentive once the mortgage has been taken out. Although Cashbacks can be offered on all mortgage types, they are most common when you apply for a Variable Rate Mortgage.
What are Redemption Penalties?
Some Lenders expect you to stay with them for a minimum period of time. If your Lender has offered you a special scheme (Fixed Rate, Discounted, Cashback mortgage) they may charge you an Early Redemption Charge if you decide to repay the loan prior to the scheme ending. It is possible to find Lenders and schemes with No Early Redemption Charges.
What is an Overhang?
Some Lenders may continue to Charge an Early Redemption Penalty after your Fixed, Discounted or Cashback scheme has ended. It is possible to find Lenders and Schemes that do not have Overhanging Penalties.
How much Deposit do I need to get a Mortgage?
Having a deposit toward the purchase of your home is preferable but it is possible to borrow 100% of the purchase price. In some situations lenders will consider a mortgage in excess of the purchase price.
I have a deposit how does this help?
Having a deposit helps in several ways. One of the main advantages is an increased choice of the lenders wishing to assist and an increased number of mortgage schemes to choose from.
What fees should I expect to set up a Mortgage?
Lenders will want a valuation to be carried out on the property you wish to purchase, the cost of this report is usually charged to you. In addition you may be asked to pay either a Booking or Arrangement fee, these fees are specific to a scheme being offered by the lender. Finally, you may be required to pay a Higher Lending Charge, this is an Indemnity Insurance taken out by the lender.
What other fees should I expect?
When buying a home you would usually use a Solicitor to carry out the legal work, the Solicitor will work on your behalf and for the Lender; you are expected to pay for this work.
If you are buying a property with a value in excess of £120,000 you will be charged a tax called Stamp Duty. Stamp Duty is charged at different rates depending on the purchase price:
Property Value£125,000 - £250,000 = 1% of Purchase Price
Property Value £250,001- £500,000 = 3% of Purchase Price
Property Value over £500,000 = 4% of Purchase Price
Other costs may include a more detailed survey of the property you are buying and of course your moving costs.
How much can I borrow?
The amount you can borrow will depend on several factors. The lender will decide how much they can lend you based on factors such as: your income, existing credit commitments and your deposit. If you are looking to buy jointly this can increase the amount you are able to borrow. Each lender will have different criteria for the maximum they will lend but as a guide you could borrow 3.5 x the highest income + 1 x the second income or 2.75 x the joint income.
I'm unable to prove my income?
Lenders understand that in some situations it can be difficult to prove your total income. For this reason some Lenders offer mortgage finance based on your confirmation of income (Self Certification). Although this is a flexible way of borrowing money, you may be expected to find a larger deposit than usual or pay a higher rate.
What is Right To Buy?
If you are offered the opportunity to buy either your Council home or Housing Association property you could be eligible for mortgage finance. In most cases you would be offered a discount against the open market value of your home, this results in the Right to Buy value. Lenders will often agree to lend you 100% of the Right-to-Buy value. In most cases you would still have to pay the usual fee's associated in buying a home, including Stamp Duty.
What is Shared Ownership?
Shared ownership schemes vary depending on where you live. In most cases you buy a share of the property with the help of a mortgage; the Housing Association will buy the other share and will charge you rent on a monthly basis.
I have a poor credit history, can I get a Mortgage?
This will depend on the extent of your credit problems, if you are still declared bankrupt the answer would be no. If you have less serious credit problems such as Defaults or County Court Judgements you may still be able to get mortgage finance. To be sure about your credit history you should order a copy of your credit report (Click Here to Order).
How should I choose a Mortgage?
It is important to take independent advice and from an Adviser who is regulated bu the Financial Services Authority (FSA).
Jargon Buster
The Financial Services Authority offers its own information & guidance to consumers regarding mortgages. This is a link to FSA website. Visit the FSA website.
When sorting out your mortgage, you may come across some unfamiliar terms. Here are some straightforward explanations:
Annual Percentage Rate (APR)
This rate takes into account all the costs, interest charges, arrangement fees etc. Theoretically it allows you to compare mortgages on a like for like basis. However, you need to be careful as different lenders calculate it in different ways.
Capped Rate
The interest rate can go up and down. This is usually referred to as the Standard Variable Rate. However, it won't rise above an agreed rate - the Cap. If the standard variable rate goes above the cap, you'll only pay the capped rate. The capped rate usually lasts for an agreed period.
Conveyancing
The legal process involved in buying and selling properties.
Deeds Fee
An administration charge made by lenders when you repay the mortgage to release the deeds of the property. Also known as a sealing fee.
Discounted Rate
A guaranteed reduction in the standard variable mortgage rate. The discount usually lasts for an agreed period.
Early Repayment Charge
If you want to pay off your mortgage early, you may have to pay a fee during the early years of the loan. The fee may be equivalent to a certain number of month's interest, or it could be a percentage of the loan. Some lenders only charge an early repayment charge during the time of the special deal they offer. Others may tie you in for a number of years afterwards. If you think you may want to repay early, check what conditions apply before you decide which type of mortgage you want.
Exchange of contracts
The point at which the buyer and seller have legally committed themselves to the sale and purchase of the property.
Fixed Rate
The interest rate is fixed for a set period.
Freehold
This is when you own the property and the land that it is on.
Higher Lending Charge
This is a charge paid to provide The Chesham with extra security where your loan exceeds our basic advance of 80% of the value of the property, or purchase price, whichever is the lower. Part of this fee may be used by us to purchase additional security, in the form of an indemnity insurance. Please see the Consumer Information page for further details.
Interest Only Mortgage
With this kind of mortgage only the interest on the loan is paid, so the capital sum borrowed does not decrease. You are responsible for arranging a suitable investment at the same time as taking out the mortgage which may produce a capital sum sufficient to repay the mortgage loan at the end of the mortgage term.
Leasehold
This is when you own the property for a set number of years. After that it goes back to the freeholder. Most flats in England are leasehold.
LTV
Loan to Value. This is the amount of the mortgage expressed as a percentage of the value of the property, or the price you are paying for the property. So a £60,000 mortgage on a £80,000 property would mean an LTV of 75%.
Remortgage
This is when you switch your mortgage from your current lender to another one. You take out a new mortgage to repay your current one. You may be able to get a better rate that saves you money.
Repayment / Capital and Interest Mortgage
Your monthly payments are partly to pay the interest on the amount you borrowed, and partly to repay the amount you borrowed. At the end of the mortgage, the capital and the interest is all completely repaid. It is also known as a repayment mortgage.
Sealing Fee
A charge made by lenders when you repay the mortgage to release the deeds of the property. Also known as a deeds fee.
Stamp Duty
Government tax payable on the purchase of property. It ranges from 1% on properties over £60,000, up to 3%.
Standard Variable Rate
A lender's standard mortgage rate. This goes up and down with interest rates generally.
Term
The length of time the mortgage runs before it must be fully repaid.
Title
The legal right of ownership of a property.
Title Deeds
Documents showing who owns a property.
Valuation
A simple check of the property to establish how much it is worth and whether it is suitable to lend a mortgage on. A professional surveyor carries out the valuation for the lender. You will usually pay the bill, and get a copy of the report.