Mortgages FAQ

  • What Is A Mortgage?

    A mortgage is the usual method by which individuals or businesses can purchase a property without the need to pay the full value immediately. The mortgage is a method of using the property as a security for the payment of the debt. In countries such as the UK where there is huge demand for home ownership major business markets have developed as building societies and banks compete for business.

  • How Do I Get A Mortgage?

    To qualify for a mortgage you must meet with a lender usually a building society or a bank. They will ask for information about you including your assets, income, occupation etc. Based on all the information they receive the lender will assess your ability to repay and how much money you can borrow from them.

  • Whats A Variable Rate Mortgage?

    This is the traditional way mortgages were arranged before fixed rates came along. A variable rate fluctuates up and down to reflect the true cost of borrowing following any changed to the main interest rate set by the Bank Of England. Some variable rates may also be discounted for a period of time. If the rate changes via the Bank of England are favourable you score highly with a variable rate mortgage. If the rate continues to rise you are disadvantaged by your choice of a variable rate mortgage.

  • What Are Fixed Rate Mortgages?

    A fixed rate mortgage is the type of mortgage where your interest rate for repayment is fixed for a specified amount of time so you know exactly what your mortgage payments will be in that period. They can vary in terms from short periods several months - up to an entire 25 year mortgage term. Fixed rate mortgages offer certainty and reliability and can help you budget effective. The problem with them is that if the general interest rate falls sharply you lose out financially. The best time to take one out is when interest rates appear likely to rise in the near future.

  • What Are Buy To Let Mortgages?

    These are mortgage deals when you are looking to buy a property as a business investment with the intention of letting it out. An increasingly popular investment opportunity in the UK now being handled by a number of specialist lenders. The rent you charge for the property should ideally cover your mortgage payments, and any costs associated the letting of the property such as letting fees or the makeover of the property.

  • What Are Capped Rate Mortgages?

    Capped rate mortgages ensure a fixed ceiling on the interest rate you pay over a specific period of time. They are usually higher than fixed rate mortgages because you pay for the security of knowing your mortgage repayments will never go beyond a certain level no matter what the changes are in general interest rates. They are a good way of budgeting and can save you money if the variable rate soars.

  • How Much Do I Need For A Down Payment?

    In the UK traditionally the borrower would provide a minimum deposit based on a percentage of the value of the property they were seeking to purchase. Traditionally the lender would lend an amount up to three times the salary of the buyer(s). However nowadays 100 per cent mortgages are possible with no deposit outlay required. If this is the case the lender may insist you take out some form of Mortgage Protection Insurance to assist you in case you default on your loan.

  • How Do I Remortgage Or Obtain A Secured Loan?

    Remortgaging your home is advisable from time to time so you can benefit from more competitive offers. The equity in your home can be used to consolidate other debts by remortgaging either to obtain cashback or a more beneficial repayment deal. A remortgage can dramatically reduce your overall monthly debt. Always approach remortgaging very carefully though and seek proper advice. Weigh up all costs associated with sorting the re-mortgage as well as any savings to be made on the monthly repayment Remember, ultimately failing to keep up with repayments could involve losing your home.

  • Should I Choose A Fixed Or Variable Interest Rate Mortgage?

    Its the big question. Interest rates are usually a definition of the annual percentage of the amount borrowed. A fixed rate loan offers security. You know your interest rate will not change during the duration of the loans term. A variable rate could mean increases and/or decreases to your mortgage payments so this is more of a gamble and so ideally you should be confident that you can both predict the market and prepare for any potential expense.

  • Whats A Repayment Mortgage?

    Also known as an Annuity mortgage or Capital and Interest mortgage. With this type of mortgage the monthly repayment includes a part of the capital sum borrowed in addition to any interest charged. In the initial period of repayment the majority of the monthly repayment consists of interest with just a small part repaying back the capital. As the debt reduces the element of capital grows and the interest element reduces. This mortgage will guarantee to repay the total mortgage debt at the end of the agreed mortgage term.

  • What Is The Mortgage Term?

    The number of years over which the mortgage is arranged. The traditional term is 25 years but vast interest savings can be made by reducing the mortgage term by even just a few years.

  • Whats A Discounted Rate?

    Some variable rates may be discounted for a period of time and are known as discounted rates. The lender agrees to give a fixed discount off the normal variable rate for a guaranteed period of time. The discounted rate will move up and down with the normal variable rate but the payment rate will retain the agreed differential below the variable rate for the agreed period of time. If a discounted rate is taken the lender will normally impose early redemption penalties if the mortgage is repaid within the first few years.

  • What Are Redemption Penalties?

    These are additional charges made by the lender imposed to stop borrowers transferring their mortgage to a competitor too easily. Normally expressed as a number of months interest or as a percentage of the mortgage debt within a certain period. Borrowers need to consider any redemption penalties carefully.

  • What were Endowment Mortgages?

    They were an interest only mortgage supported by an endowment policy. During the term of the mortgage only the interest on the mortgage is paid to the lender. At the same time premiums are paid into an endowment policy which is designed to mature at the end of the mortgage term. The proceeds are designed to repay the mortgage debt although this is never guaranteed. An endowment policy sometimes included life assurance which would repay the mortgage debt in the case of the death of the policyholder within the agreed term.

  • What Are Individual Savings Account mortgages?

    ISA mortgages work on the same principle as endowment mortgages but use an Individual Savings Account as the loan repayment method. Isas are flexible. You can pay the amount you want each month but they carry the same risks as endowment mortgages. If your investment performs badly you could face a shortfall at the end of the mortgage term.

  • What Other Expenses Are There When Taking Out A Mortgage?

    Administration fees are charged by some lenders and are not refundable if the mortgage application does not proceed. The Administration fee will often form part of the valuation fee of the property but can be retained by the lender even if the valuation has not been carried out. Mortgage lenders may also impose a retention ie hold back some money until certain mortgage conditions are met, normally repairs or improvements to the property. House buyers in the UK may also be liable to Stamp duty, a tax levied on the purchase of properties over 125,000. You pay between one and four per cent of the whole purchase price, on a sliding scale.

  • Whats the APR?

    The Annual Percentage Rate. This is meant to show the true cost of borrowing. It adjusts the notional interest rate to take account of all the initial fees and ongoing costs to reflect the real cost of the borrowing in the entire mortgage term. Unfortunately it is not always agreed amongst lenders how this rate should be worked out and therefore there is often a lack of agreement about whether it is a good guide to the actual real costs of your loan. Take care when comparing offers to see whether both APRs have been calculated in the same way.

  • Can I Get Cashback?

    Yes. This is where a cash sum is repaid to the borrower at the start of the mortgage arrangement increasingly as an incentive to you to choose that mortgage. Check there is no catch with any large cashback offers. The lender will normal impose early redemption penalties if the mortgage is redeemed within an initial early period.

  • When Do I Start To Pay My Mortgage Debt?

    On legal completion when the legal ownership of the property changes hands. This date will usually be agreed upon the exchange of contracts. When you have an exchange of contracts you have legally bought your property and are bound by the agreement to buy and sell and your mortgage comes into effect. Once contracts are exchanged the vendor becomes legally obliged to sell and the purchaser to buy on the terms agreed.

  • Whos The Guarantor?

    A person other than the borrower who guarantees the mortgage repayments. A Guarantor can sometimes be a friend or family member who is used to support a borrower who has insufficient income to qualify for a mortgage in their own right. The Guarantor will normally need to have sufficient income to support the new mortgage in its entirety and becomes responsible for the whole mortgage repayment if the borrower defaults.

  • How Bad Is Negative Equity?

    Can be very bad for your finances. If property prices decline drastically your house will deteriorate in value even though you continue to pay for the original inflated value via your mortgage. Basically with negative equity the value of your property falls below the outstanding mortgage debt. Its terrible news if you want to move or sell your house. This term first gained notoriety in the 1980s in the UK as a result of major economic recession and a rapid decline in property prices.