What
is a Mortgage?
A mortgage is a sum of money borrowed from a bank or building
society in order to purchase a property. The money is paid
back to the Lender over a fixed period of time together with
accrued interest. |
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What
types of Mortgage are there?
You will find two main types of mortgage, these are:
1. Repayment (Capital
and Interest mortgage)
2. Interest only (ISA,
Pension, Endowment mortgage) |
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What
is a Repayment Mortgage?
With
a repayment mortgage your monthly payments consist of both the
capital amount borrowed together with accrued interest. Your
lender will keep you advised about how much you have repaid. |
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What
is an Interest Only Mortgage?
With
this type of mortgage you only pay the interest accrued on the
mortgage each month. It is usual for the borrower to take out
a savings or investment plan at the same time as applying for
the mortgage; this could be an ISA, Pension or Endowment plan.
The main fact about this method is that the capital balance
of the mortgage stays the same during the mortgage term; only
the interest is paid to the Lender each month. |
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What
is a Fixed Rate Mortgage?
With
a Fixed Rate Mortgage the amount you repay to the Lender each
month stays the same for an agreed period. When applying for
the mortgage you may be offered a Fixed Rate from 1-25 years. |
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What
is a Capped Rate Mortgage?
A
Capped Rate Mortgage is similar to a fixed rate except when
the variable rate drops below the capped rate, should this happen
the borrower would make payments based on the lower variable
rate. |
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What
is a Discounted Mortgage?
This
option is linked to the lenders Variable Rate. The Lender may
offer you a discount to their Variable Rate for a specified
period of time. With this option there is no certainty what
your future payments could be. |
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What
are Cashbacks?
The
Lender may offer you a cash incentive once the mortgage has
been taken out. Although Cashbacks can be offered on all mortgage
types, they are most common when you apply for a Variable Rate
Mortgage. |
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What
are Redemption Penalties?
Some
Lenders expect you to stay with them for a minimum period of
time. If your Lender has offered you a special scheme (Fixed
Rate, Discounted, Cashback mortgage) they may charge you an
Early Redemption Charge if you decide to repay the loan prior
to the scheme ending. It is possible to find Lenders and schemes
with No Early Redemption Charges. |
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What
is an Overhang?
Some
Lenders may continue to Charge an Early Redemption Penalty after
your Fixed, Discounted or Cashback scheme has ended. It is possible
to find Lenders and Schemes that do not have Overhanging Penalties. |
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How
much Deposit do I need to get a Mortgage?
Having
a deposit toward the purchase of your home is preferable but
it is possible to borrow 100% of the purchase price. In some
situations lenders will consider a mortgage in excess of the
purchase price. |
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I
have a deposit how does this help?
Having
a deposit helps in several ways. One of the main advantages
is an increased choice of the lenders wishing to assist and
an increased number of mortgage schemes to choose from. |
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What
fees should I expect to set up a Mortgage?
Lenders
will want a valuation to be carried out on the property you
wish to purchase, the cost of this report is usually charged
to you. In addition you may be asked to pay either a Booking
or Arrangement fee, these fees are specific to a scheme being
offered by the lender. Finally, you may be required to pay for
a Mortgage Indemnity Guarantee (MIG), this is an Indemnity Insurance
taken out by the lender; some lenders will only lend you money
over 75% of the property value if a MIG is taken out. You should
be aware that a MIG is an assurance for the Lender not the borrower. |
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What
other fees should I expect?
When
buying a home you would usually use a Solicitor to carry out
the legal work, the Solicitor will work on your behalf and for
the Lender; you are expected to pay for this work.
If you are buying a property with a value in excess of £60,000
you will be charged a tax called Stamp Duty. Stamp Duty is charged
at different rates depending on the purchase price:
Property Value £120,001 - £250,000
= 1% of Purchase Price
Property Value £250,001- £500,000
= 3% of Purchase Price
Property Value over £500,000 = 4% of
Purchase Price
Other costs may include a more detailed survey of the property
you are buying and of course your moving costs. |
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How
much can I borrow?
The
amount you can borrow will depend on several factors. The lender
will decide how much they can lend you based on factors such
as: your income, existing credit commitments and your deposit.
If you are looking to buy jointly this can increase the amount
you are able to borrow. Each lender will have different criteria
for the maximum they will lend but as a guide you could borrow
3.5 x the highest income + 1 x the second income or 2.75 x the
joint income. |
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I'm
unable to prove my income?
Lenders
understand that in some situations it can be difficult to prove
your total income. For this reason some Lenders offer mortgage
finance based on your confirmation of income (Self Certification).
Although this is a flexible way of borrowing money, you may
be expected to find a larger deposit than usual. |
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What
is Right To Buy?
If
you are offered the opportunity to buy either your Council home
or Housing Association property you could be eligible for mortgage
finance. In most cases you would be offered a discount against
the open market value of your home, this results in the Right
to Buy value. Lenders will often agree to lend you 100% of the
Right-to-Buy value. In most cases you would still have to pay
the usual fee's associated in buying a home, including Stamp
Duty. |
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What
is Shared Ownership?
Shared
ownership schemes vary depending on where you live. In most
cases you buy a share of the property with the help of a mortgage;
the Housing Association will buy the other share and will charge
you rent on a monthly basis. |
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I
have a poor credit history, can I get a Mortgage?
This will depend on the extent of your credit problems, if you
are still declared bankrupt the answer would be no. If you have
less serious credit problems such as Defaults or County Court
Judgements you may still be able to get mortgage finance. To
be sure about your credit history you should order a copy of
your credit report (Click Here to
Order). |
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How
should I choose a Mortgage?
It is important to take independent advise and from an Adviser
who subscribes to the Financial Services Authority (FSA). |
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