What is a mortgage?
A mortgage is a loan you have take out to purchase a property. Most commonly for you to buy a house, but they are also used for commercial properties if you are running a business.
Types of mortgages
There are two types of mortgages that are primarily used. The fixed rate and variable rate. The type of mortgage you take out can affect how much you are able to borrow as they will provide you with different monthly payments.
Fixed rate – will set a specific interest rate and only charge based off that. It is very unlikely to change throughout the period of your mortgage. This can be good for someone looking to spread out a large cost through smaller predictable payments but over a longer period of time.
Variable rates – are able to change at any moment as they reflect the interest rate. So each time the interest rate changes your monthly payment will change to reflect it, whether it is higher or lower. Forms of variable rates include:
Standard variable rate – The rate that the lender chooses to charge that will be applied throughout the length of the mortgage, this rate may change depending on the Bank of England base rate.
Discount mortgage – the same standard rate as above, however, the lender would have applied a specific discount for a set period of time usually under five years.
Tracker rate – follows the Bank of England’s base interest rate (may also follow another rate), but with a few percent added on top.
As you can tell variable rates are slightly more complex and unpredictable than the fixed rate, however, there is potential to be charged less over the life of your mortgage. You just need to make sure that in a case where interest rates rise, you are able to afford it.
How can I apply
You can apply either through a broker or directly through the lender. It is often good to apply through a broker as they have access to a wider range of offers from more than one lender. However many brokers charge fees so make sure you are aware of them. Huuti will
How will they know which product is best for me?
Lenders will pay close attention to your monthly spending and make their own calculations on how much ‘room’ you have to fit in paying off your mortgage. They will take into account your essential spending alongside your lifestyle spending such as groceries, phone and utility bills, direct debits etc. They will use this total to understand how comfortable you could pay back the loan with your current monthly income. For a deeper dive into how lenders work out your affordability see here.
Whether you apply through a broker or a lender you will always be provided with an adviser to guide you properly so you will always be in safe hands. Independent brokers have been known to offer the most support and assistance during a mortgage process.
What if I fail to keep up?
There are ways to cover yourself and the lender in the event that you are not able to pay your mortgage. Once completing your mortgage application you have the option to take out extra products such as mortgage protection. This will safeguard you and your family if you were to become unemployed or seriously ill. It is not compulsory, but definitely worth some thought. Mortgage arrears can raise a big issue for future credit.
Understanding your affordability? Mortgage affordability is incredibly complex as different Lenders have different criteria which change very often with little notification.Plug into Huuti to get a better understanding of your current affordability and what steps you need to take to get you home!