7 Frequently Asked Questions About Mortgages…Answered

There are many unknowns when it comes to buying a house and applying for a mortgage. Getting the answers you need before you start the process can help remove uncertainties and guide you in the right direction.

In this article, we’ve answered 7 of the most common questions you might find yourself asking when you come to find a mortgage:

1. What mortgage can I get?

Many different types of mortgages are available depending on your circumstances and how you want to repay.

Repayment mortgages

Probably the most well-known mortgage type. You’ll have monthly payments for a set period of time, often 25 years, which cover some of what you borrowed plus some interest.

This is a good choice if you want to pay your mortgage off and own your home outright by the end of the term.

Interest-only mortgages

Different from a repayment mortgage, an interest-only mortgage requires you to pay off only the interest (rather than the capital) each month. This means monthly payments tend to be lower, but when the loan period ends, you’ll need to pay off the mortgage in full.

This is a good choice if you want low monthly payments and know you can save enough to pay off the mortgage when the time comes.

Cashback mortgages

A cashback mortgage is incentivised with a lump sum paid once the mortgage is taken out. However, it’s important to check interest rates and fees, as other mortgages could still be cheaper.

A good choice if you could do with some money to help with your move.

Buy-to-let mortgages

A buy-to-let mortgage is available if you plan to rent out the property you’re buying. The amount you can borrow is often determined by how much you can charge as rent.

A good choice if you want to become a landlord and buy a property to rent out.

2. How does mortgage interest work?

Mortgage interest is the money you have to pay back on top of the amount you’ve borrowed. The higher the rate, the more interest you have to repay, and the bigger your monthly payments will be.

Usually, the best rates are reserved for buyers with a 40% minimum deposit, while buyers with a 10% deposit will probably have to pay a higher interest rate.

3. Are mortgage payments tax deductible?

If you rent out a property, you’ll need to pay tax on any profit you make. However, while mortgage payments aren’t entirely tax deductible, the interest part of it is. But only while the property is being used for rental purposes.

For example, if your property is let for 6 months of the year (the other 6 you have for personal use), then 6/12 of the mortgage interest can be offset against your rental income.

4. Which mortgage brokers are best?

Mortgage brokers offering independent advice, ideally with whole market access, are best placed to help you find the right deals and the best rates. You may even want to seek out a broker with specialist expertise such as in mortgages for bad credit.

Always read reviews and check for relevant professional qualifications, such as those from the London Institute of Banking & Finance.

5. Which mortgage is best for me?

What mortgage you choose depends on your personal and financial circumstances. The good news is that no matter what they are, there are lots of options available.

A mortgage broker can help you determine what you can afford and what mortgage term to go for – whether you’re buying a property to rent out, have bad credit, are a first-time buyer or are self-employed.

6. What happens when a mortgage is paid off?

Whether you paid your mortgage off early or the term ended, you own your home outright when that final payment is made.

You should get a final letter from your lender confirming this, and if you decide to sell the property, the money you receive from the sale is yours.

7. Who are mortgage underwriters?

Underwriters are decision-makers in the mortgage world. They work directly for banks and lenders and have the power to approve or decline your mortgage application.