The complete guide to mortgages
Considering your mortgage options? Get started on the right foot with our clear and simple mortgage guides.
Ways of paying for a mortgage
The most popular mortgage is known as a ‘repayment mortgage’.
You’ll make monthly repayments - made up of interest and capital payments - over a predefined term, and you’ll gradually whittle down the money you owe to the lender until you own the property outright.
There are two main types of repayment type: fixed rate and variable.
Fixed rate mortgages
With a fixed rate mortgage you’ll agree an interest rate with your lender from the outset. This will remain the same throughout the deal’s initial period. If you decide you want to end this period early, you may be expected to pay an early repayment charge.
Variable rate mortgages
The other type of mortgage is the variable rate mortgage. These interest rates move up and down, generally in line with The Bank of England’s interest rate which generally reflects the state of the UK economy.
There are three kinds of variable rate mortgage:
Tracker mortgages follow the Bank of England’s official interest rate.
Standard Variable Rate (SVR) mortgages usually have high rates that move in line with the Bank of England’s interest rate. This is the rate you will automatically move onto after your initial fixed period.
Discount variable rate mortgages give the customers a discount off the standard variable rate for a period of time.
Like some fixed rate options, variable rate mortgages can also come with early repayment charges.
With an interest-only product, you’ll only pay the interest on the loan – rather than the capital required to buy the property – at the end of each month.
While your monthly payments will be smaller than they’d be with a repayment mortgage, you’ll need to pay off all the capital in one go at the end of the term or make lump sum payments throughout the term.
You will need to provide evidence of how you intend to repay the loan so that the lender is confident it will be repaid. Restrictions will apply depending on your repayment vehicle.
If you can’t afford to pay off the capital you could find it hard to remortgage or switch, which is why this isn’t commonly recommended by mortgage advisers.
Combined repayment and interest-only mortgages
Some lenders combine both interest-only and repayment mortgages. So you’ll pay off the interest and some – but not all – of the capital you borrowed each month.
The remaining capital left to pay at the end of the term should be paid as a lump sum.
First-time buyer mortgage
When you first apply for a mortgage, lenders will analyse your income and outgoings to check you can afford to keep paying your mortgage if the cost goes up.
Your deposit could represent anything from 5% of the value of the property – though the more you have, the cheaper your mortgage is likely to be.
You’ll need to pay solicitor’s fees, valuation costs, and buildings insurance, which is the only mandatory insurance you’ll need. There are other insurance options you can also add, but are optional.
However, one piece of good news is that you won’t need to pay any stamp duty – a buyer tax – on the first £300,000 of any property worth up to £500,000.
How Trussle can help first-time buyers
Once you’ve secured a mortgage, our monitoring service will keep tabs on it and we’ll notify you immediately if there’s a more suitable deal out there at any point in the future.
Read more about first-time buyer mortgages here.
A remortgage refers to getting a new mortgage when you already have one.
You can select a new deal from the same lender or look elsewhere altogether.
Most people remortgage their home to secure a more favourable deal. Most mortgages come with introductory periods, and once these have expired it usually doesn’t make financial sense to stick with them since you’ll end up on a generally higher-interest Standard Variable Rate (SVR).
You can also remortgage to release more money from your property to consolidate debts or fund home improvements for example.
How Trussle can help with your remortgage
Simply provide your details by completing your Trussle profile – when your mortgage started, for example, and what type it is – and we’ll scour the market to find the most suitable deal for you.
You can talk to our advisers by live-chat, email, or over the phone if you wish, and keep track of your application from start to finish from your Trussle timeline.
Read more about remortgaging here.
If you’re looking to rent out your property, you’ll need a buy-to-let (BTL) mortgage.
Most of the big banks offer BTL mortgages, as do some specialist lenders, and the amount they’ll offer you will be linked to the amount of rental income your property is expected to earn and/or your own income.
You will generally require rental income of either 125% or 145% of your monthly mortgage repayments, assuming an interest rate of typically 5.5%.
How BTL differs from residential
The minimum deposit is typically higher, as most lenders ask for at least a 25% deposit.
Interest-only is more popular, to keep payments low and maximise returns.
Limited company or individual
When you take out a buy-to-let mortgage you need to decide whether you want to take out a mortgage as an individual or through a limited company.
More multi-landlords are now favouring the limited company option, as changes to mortgage tax relief have made it more expensive to be an individual buy-to-let landlord.
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Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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