When it comes to buying a house and applying for a mortgage, there are lots of unknowns. 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:
- What mortgage can I get?
- How does mortgage interest work?
- Are mortgage payments tax deductible?
- Which mortgage brokers are best?
- Which mortgage is best for me?
- What happens when a mortgage is paid off?
- Who are mortgage underwriters?
1. What mortgage can I get?
There are lots of different types of mortgages available depending on your circumstances and how you want to repay.
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.
A good choice if: by the end of the term you want to pay your mortgage off and own your home outright.
Fixed rate mortgages
A type of repayment mortgage that means your payments are fixed for a set period e.g. 2, 3, 4 or 5 years. Your monthly payments won’t change, which is good if interest rates go up, but not so good if they go down.
A good choice if: you want the reassurance of knowing exactly how much your payments will be every month.
Variable rate mortgages
A type of repayment mortgage that means your payments could go up or down as the lender’s Standard Variable Rate (SVR) changes.
A good choice if: you think there’s a good chance interest rates will come down.
A type of repayment mortgage that “tracks” the Bank of England base rate at a set amount e.g. 1.5% above. It means your monthly payments could go up or down.
A good choice if: you can afford the mortgage even if rates go up but there’s a chance they’ll come down.
Discounted rate mortgages
A type of repayment mortgage with a rate set lower than the lender’s SVR. E.g. a 1% discount on a 4% SVR. The discounted rate is often for a fixed time, usually no more than 5 years, and your payments could go up or down.
A good choice if: you’re looking for lower mortgage payments initially but can afford to keep up with payments if things change.
Capped rate mortgages
A type of repayment mortgage with a variable rate that’s “capped” at a certain amount. It means there’s a limit to how much the mortgage rate can go up, but it can also come down.
A good choice if: you’re worried mortgage rates could get a lot higher.
Different to a repayment mortgage in that you only pay off the interest (rather than the capital) each month. It means monthly payments tend to be lower, but when the loan period ends you’ll need to pay off the mortgage in full.
A good choice if: you want low monthly payments and know you can save enough to pay off the mortgage when the time comes.
A mortgage incentivised with a lump sum of money that’s paid once the mortgage is taken out. However, it’s important to check interest rates and fees as other mortgages could still work out cheaper.
A good choice if: you could do with some money to help with your move.
Buy to let mortgages
The type of mortgage available if you’re planning 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 it 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 the relevant professional qualifications such as from The London Institute of Banking & Finance.
5. Which mortgage is best for me?
What mortgage you go for depends on your personal and financial circumstances. But the good news is, no matter what they are there are lots of options available.
A mortgage broker can help you work out 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, when that final payment is made you own your home outright.
You should get a final letter from your lender confirming as much, and if you decide to sell the property the money you get from the sale is all yours.
7. Who are mortgage underwriters?
Underwriters are decision-makers of the mortgage world. They work directly for banks and lenders and have the power to approve or decline your mortgage application.
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