Mortgage Guide

A mortgage is probably the biggest financial commitment you’ll ever make, and you may have little or no previous experience of applying for one.

It’s not easy to compare different mortgage deals, and the decisions you make now could affect you for years to come.

So we’ve put together this guide to get you started and hopefully make the process a great deal easier for you. When you need advice, we’re here for you, every step of the way.

Whether you’re a first-time buyer or have bought a home before, this guide will help you find the right mortgage for you and stay in control of it in future.

We’ll show you how to:

  • Prepare for the process
  • Understand the different types of mortgage
  • Secure the best deal
  • Stay on top of mortgage fees
  • Move to a new mortgage

Preparing for your mortgage application

If you want to secure your dream home, then you need to do your homework.

Effectively you need to convince a lender that they should lend you a large sum of money, and that you’ll be able to pay this back.

The stronger your application, the better the deal you may be offered. The better your mortgage deal, the more money you may save in the long-term. But a weaker application may lead to a more expensive deal, or be refused outright.

The best approach is to do everything you can to try and succeed first time. Asking us help you to secure a mortgage is one of the best and easiest ways to ensure that you succeed first time.

Tips to get mortgage prepared

Save the biggest deposit you can

With a larger deposit you can secure a lower interest rate and also won’t have to borrow as much. Over time, this can save you a huge

amount of money. Remember to leave some money aside for moving costs, such as stamp duty, conveyancing and insurance.

Complete a budget planner

Write down your regular monthly outgoings like rent, mortgage payments, utility bills etc. This will be taken into account when lenders assess you for affordability so it important to know where your money goes, you might even decide to make changes to your spending habits when you see it written down. If you don’t have a budget planner or know where to start, give us a call and we’ll help you.

Check your credit score

You need a good history of borrowing and repaying money on time. Register with a credit scoring company to see what lenders will see and use it to manage your credit profile on an ongoing basis. If you don’t already, start using a credit card and pay off the balance

in full each month. Also cancel any credit cards or store cards you don’t use. You can also give us a call to find out other ways to boost your credit score.

Reduce other liabilities

Pay down any other debts as far as possible, and cut back non-essential spending such as expensive holidays, luxury items or costly

hobbies. Avoid gambling in the months before your application and steer completely clear of payday loans.

Gather your paperwork

When applying for your mortgage you will need to present three recent payslips and/or bank statements. If you’re self-employed, you’ll generally need to submit at least two years of recent accounts

instead of payslips. Also have your monthly spending calculations ready (see above) as your lender will ask for this information.

Use us as your mortgage broker

We have the knowledge and experience to find you the best mortgage deal available on the market, based entirely on your unique circumstances. Before we recommend a mortgage to you, we’ll have compared it against hundreds of others out there to make sure it’s the right one for you and, we’ll deal with the lender’s application process for you and deal with all the paperwork.

Types of mortgage

The mortgage you need to buy a home is called a residential mortgage. There are three main types of residential mortgage: repayment, interest-only and part & part.

Repayment mortgage

Your monthly payments will pay back the whole loan, including interest, over the mortgage term. This means that when the mortgage term is over, the borrowed money is completely repaid.

Interest-only

Your monthly payments will pay only the interest on the loan (so will be smaller than with a repayment mortgage). However, at the end of the mortgage term you will have to pay back the original amount you borrowed. You might do this by using other savings or investments, or by selling the property.

Part & Part

Your mortgage may be a mixture of repayment and interest-only, so that a portion of the loan is paid off by the end of the mortgage term but an amount remains outstanding that needs to be settled at the end.

Finding the right deal

When you take out a mortgage, the number one question is usually, ‘How much will I have to pay each month?’ The answer depends of course on how much you borrow – but also on what mortgage deal you have.

There are a variety of different kinds of mortgage deal, including fixed rate, tracker, capped, discounted, variable and offset.

Choosing the right type of mortgage is really important so it’s important to understand the pros and cons of each kind of deal. That’s where we can help you by explaining each type so that you understand the difference and we discuss if each meets your needs.

How do mortgage rates affect me?

A mortgage deal is the agreement you have with your lender, covering the initial rate of interest you will pay, and how long you’ll pay this rate for. Remember that a deal may not last for the whole period of your mortgage – most fixed-rate deals last between two and five years, though a few do run for longer.

The risk when taking out any mortgage is that interest rates may rise in the future, increasing your monthly repayments potentially until you can no longer afford them.

In the next section we’ll give you more information about different mortgage deals.

Comparing different types of mortgage deals

Fixed rate

Suitability: First-time buyers, people who like to know where they stand financially

With a fixed-rate mortgage, you know exactly how much interest you will pay for the length of the deal period. The downside is that if mortgage rates fall, you will be stuck paying the fixed rate you agreed.

Once a fixed-rate deal ends, you’ll be switched to the lender’s  Standard Variable Rate (SVR), which may be higher and less predictable. However, you may then be able to remortgage to a new deal.

Comparing different types of mortgage deals

Tracker rate

Suitability: Those who want lower interest than a fixed-rate, but could afford to pay more if necessary

A tracker mortgage moves in line with an external interest rate (usually the Bank of England base rate), and may be set slightly higher or lower. The main advantage is that it falls when the tracked rate falls. The disadvantage could be that there is no limit to how high it can go. There are limits that can be placed by lenders on how low and high rates can go before stopping, we can explain that in more detail if you would like.

Comparing different types of mortgage deals

Discounted rate

Suitable for: Those looking for the lowest rates, but who could afford to pay more and can cope with unpredictability

Discount mortgages may offer some of the lowest rates available, so can be very attractive initially. However, the discounted period is limited, and the mortgage tracks the lender’s SVR rather than the base rate. This can mean rate rises are higher and far less predictable.

Comparing different types of mortgage deals

Variable rate

Suitable for: Those who could afford to pay a lot more if necessary, or those unable to obtain any other kind of deal

Variable mortgages follow the lender’s SVR, which may rise even if the Bank of England’s base rate does not. Initially interest rates may be affordable, but be aware that these can rise significantly and without warning.

Mortgage fees

When taking out a mortgage you will have to pay fees – ranging from quite small to very substantial, depending on the deal being offered.

You may also have to pay fees when you leave your current mortgage, especially if you pay it off early or remortgage.

Fees when setting up your mortgage include

Arrangement fee – this is one of the variables . Some mortgages have no arrangement fee, while others run to a few thousand pounds. Some buyers add this fee to the mortgage if they can’t pay it up front – but if you do this, you’ll pay more over time due to interest.

Booking fee – when you agree a deal, you sometimes have to pay a fee upfront to secure it. Expect this to be between £100 and £200.

Valuation fees – this is a standard check your lender will carry out on the property to make sure it’s worth the price you are paying for

  1. The cost of this is about £300 although some mortgage deals come with a free valuation.

Note that although this valuation is a type of survey, you should not treat this as a substitute for hiring your own surveyor to check the property thoroughly for any faults or defects.

Higher lending charge – this often applies to high loan-to-value mortgages and can be around 1.5% of the mortgage value. Another reason to try and raise a larger deposit!

Fees when paying off your mortgage (or remortgaging)

When taking out a mortgage, it’s important to think ahead if you pay it off or remortgage (as this may be in just a few years’ time). Large Early Repayment Charges (ERCs) can keep you in a poor-value mortgage, so be sure to factor these in when assessing the pros and cons of fixed rate deals.

Early Repayment Charges

Very common on mortgages today,also known as a redemption penalty, this can be very expensive, up to 5 per cent of the mortgage value (that’s £7,500 on a £150,000 mortgage).

Exit fee

Usually small, you will sometimes have to pay these at end of the deal. Still remember to find out what they will be, and factor them in.

You shouldn’t treat your mortgage as a one-off purchase. Rather, it’s an ongoing financial arrangement that needs regular attention. The terms of the mortgage deal you are offered may only stay in place for a few years, after which they may change.

This can result in higher monthly repayments. To ensure that you can still afford these repayments – and also keep them as low as possible – you will probably need to seek out new mortgage deals every few years.

Equally, your circumstances may improve, enabling you potentially to secure a better mortgage deal. This is another reason to consider remortgaging.

This is something we will help you to do throughout your mortgage lifetime if you sign up as a client of ours, we pride ourselves on helping our clients make their money go as far as possible.

As you can see, there are plenty of factors to consider when looking for the best mortgage deal. Mistakes are easy to make, and can be very costly and hard to put right later on.

For this reason, we strongly recommend you ask us to help you with your mortgage application.

After getting to know you better we will explain all your options to you, help you weigh up the pros and cons and based on everything you tell us find you a mortgage deal that is absolutely right for you and your circumstances.

Even more importantly, we will search the whole of the market to find the best deal for you, including many that are not available on the open market or on price comparison sites.

Given the length of a typical mortgage term, this can save you many thousands of pounds overall.

Finally, and most importantly, using us as your mortgage adviser will help to maximise your chances of your application being accepted, and quickly – so you won’t have to miss out on your dream home.

Thanks for reading, we hope you’ve found this useful and remember, help with securing the best mortgage deal is only a few clicks or a phone call away.

Dominic Brierley

Dominic Brierley

Dominic joined The Money Guardian as a senior partner. He brings a wealth of experience from 30 years in financial services.

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