Most people would like to buy their own home, but very few of us could nip down to the Estate Agent and write out a cheque. Almost everybody who buys a house or other property has to borrow money to do so.
The most common way to borrow this money is with a mortgage. The lender agrees to lend you money, which is secured against the property itself. In other words, while you are paying your mortgage, the lender has rights over some or all of your property. Should you default on the mortgage, the lender is entitled to recoup their losses from the sale of the property.
Most lenders will lend you some multiple of your income, or the joint income of you and a partner, up to a percentage of the value of the property. How much they will lend you may depend on your credit-worthiness and your personal circumstances. The higher the percentage of the purchase price the lender gives you, the more the mortgage will generally cost you (often this penalty is wrapped up in insurance costs) as the risk to the lender is greater, should they have to recoup their losses against the property.
The Mortgage Term, or period of time over which you repay the mortgage can vary. This is something you need to think about very carefully. Most mortgage terms are 25 years, but you may be able to get a shorter term, and pay larger sums to clear your mortgage more quickly. The actual amount you pay for your mortgage, including interest charges, will be less if you pay off quickly.
In some areas where rising prices have made it difficult for first-time buyers to enter the market, some advisors have suggested that a 50-year term may be more appropriate. Such a long term means you will ultimately pay much more for your mortgage, but the individual monthly payments will be greatly reduced.
You should be very careful when considering what kind of term to repay over – base interest rates fluctuate, and mortgage rates are rigidly tied to the base rate. Your monthly payments can go up or down to quite a large degree, so you should always build in some leeway so you can cope with unexpected payment increase. Some mortgages fix the interest rate for a period, to try and lessen the impact of such changes, but you will have to pay the difference at some point.
For more information about mortgages, please see our mortage information at InterMortgages.co.uk.
The Mortgage Code Compliance Board
University Court Stafford
ST18 0GN
Telephone: (01785) 218200
Fax: (01785) 218249
Email: enquiries@mortgagecode.org.uk
Website: http://www.mortgagecode.org.uk
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