Mortgage Guide

Mortgage Guide

When looking to purchase a home, the majority of people will need to take out a mortgage to successfully get on the property ladder. This is by no means a simple procedure, and there’s a lot of vital information you need to know when you’re considering taking out a mortgage.

We have listed some of the most common questions about mortgages below, so read on to learn more.

What is a Mortgage?

A mortgage refers to the loan from a building society or bank (lender) which enables you (borrower) to purchase a home, land or other types of real estate property. It is known as a ‘secured loan’, meaning the bank or building society retains the right to repossess and sell the property if you are unable to keep on top of your monthly mortgage repayments.

The borrower agrees to pay the lender over time, which is typically through a series of monthly payments which are divided into ‘principal’ and ‘interest’. The borrower must also apply for their mortgage through their preferred lender, ensuring that they meet multiple requirements. This can include factors like credit scores and down payments.

How Do Mortgages Work?

Once you have secured a mortgage (after a rigorous application process), you begin to repay the amount you have borrowed from the lender in instalments over a set period of time. Though this is usually around 25 years, some mortgages in the UK have both shorter and longer repayment terms. In some cases, it can run up to 40 years.

The mortgage is secured against your property until you have paid off the mortgage in full – then you will own the property. In addition to taking out a mortgage by yourself, you also have the option to take out a joint mortgage with one or more people.

There are a number of factors you need to consider before looking to apply for a mortgage. You will need to do the following:

  • Save a deposit.
  • Find a property you want to purchase.
  • Find a mortgage through comparison tables or use a mortgage broker.
  • Ensure you can afford the mortgage you choose.
  • Put in an offer on the property.
  • Then, take out the mortgage.

Different mortgage lenders have varying requirements on whether you will be accepted for a mortgage. Ranging from the value of the property, to your age, deposit, mortgage term, credit record, income and more, there are lots of things which depend on a successful mortgage application.

What Do I Need To Know About Mortgage Deposits?

Mortgage deposits relate to the down payment put towards the cost of the property you are purchasing. Simply put, the more money you can put towards a deposit, the less money required when borrowing and the better the mortgage rate you will be offered.

The deposit is a percentage of the property’s value and is usually around 10% of the property’s entire value. The remaining percentage after the deposit has been taken will be the amount your mortgage provider will lend you. This is what is known as the Loan-To-Value (LTV) mortgage.

We have an informative guide to help you save money, useful for bigger tasks like saving for a deposit. You can access this savings tips guide here.

How Much Does a Mortgage Cost?

The monthly payments and total repayment figure depend on the mortgage deal you manage to get and the cost of the property. As well as this, interest rates will affect how much you pay for the mortgage overall, and subsequently what you have to repay to the lender each month.

Mortgage interest rates can be both fixed for an agreed period, or they can be variable. This is set by the lender and should be considered when applying for a mortgage. Other fees are also added into the entire cost of getting a mortgage, which can include things like: application fees, valuation fees, transfer fees, broker fees and more.

Many banks now offer free online mortgage calculators to help give you an idea of how much a mortgage would cost you.

Should I Get a Fixed or Variable Mortgage?

There are a few different ways that mortgage prices can change depending on whether they are fixed or variable. Fixed mortgage rates guarantee that the interest rate charged to your repayments will not change for the lender’s set period. This is usually between a period of one and five years but can vary depending on who your lender is.

By comparison, variable mortgage rates can change at any time but are usually in line with the Bank of England’s base rate and rise and fall accordingly. Alternatively, tracker mortgages have variable interest rates which follow the BoE’s exactly.

What Happens if I Miss My Mortgage Repayments?

If you run into trouble when it comes to repaying your monthly mortgage repayments, you will most likely be charged a late payment fee by your mortgage lender. Not only this, but your late repayment will be recorded and reported to credit reference agencies which could have a negative impact on your credit score.

As your mortgage is classed as a priority debt, the consequences of missing your payments can be much heavier in comparison to other debts. Because of this, your mortgage payments should be prioritised over other debts you may be dealing with. We have more information on priority debts here.

If you have a feeling you are going to miss a monthly payment, it is imperative that you contact your mortgage lender as soon as possible and inform them of your current situation. When you do this, they will have procedures in place to help you get back on track with the repayments. This could be in the form of a payment deferral, an extension to your overall mortgage term or even a period of reduced payments.

Help With Mortgages

As a priority debt, your mortgage requires urgent attention. As we have mentioned, failure to do so could result in serious consequences. In 2022, 9.71% of our debt advice seekers cited that they were behind on mortgage payments. At Angel Advance, we can assist you with your mortgage debts and find the best debt solution for you. We have a highly experienced and friendly team to help you tackle this issue every step of the way, and we help people deal with debt every single day.

To seek free debt advice yourself, use our online tool or contact our team today to discuss any mortgage debts you may be experiencing today.