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Owning a home may seem like a far off fantasy for many UK residents, but with mortgages, your dreams of owning your own property can become a reality. Choosing to buy a property is a major step for many people, regardless of their age or career path. A building - whether it be a home, an office or something else - is an incredible responsibility and can be a great challenge for even the savviest of investors. Due to the complexity and dense terminology related to mortgages, you may feel as though you are not prepared for this challenge. However, by taking some time to learn the basics, you will be well on your way to affordable deals, a successful purchase and an exciting move-in day.

Types of Mortgages

One of the first things you will need to know, and possibly the most important, is that there are different types of mortgages to choose from, and they are broken down into different repayment methods and interest rates. Also, be aware that there are mortgages for special circumstances as well. As a mortgage is such a major commitment, you will want to be familiar with all types before you make your selection.

When it comes to repaying mortgages, you have two options. The most common type is a repayment mortgage. This is a sort of loan wherein you must pay back the capital - the total amount borrowed - over the mortgage period, and also pay interest. The second, and less popular option is an interest-only mortgage. If you choose this sort of loan, you will only have to pay interest over the duration of the mortgage, but you will have to pay back the capital at the end of the mortgage term. generally, people repay their capital using an endowment policy, investment plan or pension.

Your loan can also vary by interest rates, and the most common of these is the standard variable rate. This rate is the one chosen by the lender, and they can change this at any time. The rate may have a cap, which is the highest value a rate can rise, and a collar, which is the lowest value a rate can fall. Many lenders will allow you to fix your rate for a few years. Some standard variable options also have a cash back feature, which means you receive a lump sum of cash when you take out the loan - but this, too, must be paid back. Other common interest rates is the Tracker rate, which is fixed to a public interest rate (generally the Bank of England), or the LIBOR rate - which is much less common.

Specialised Mortgages

When you apply for your loan, your lender will generally use your salary as a factor in determining how much to loan you. If you are self-employed or work for a commission, you may want to obtain a self-certification mortgage. Or, perhaps you are buying a home for the first time and wish not to pay a deposit on your loan. For this situation, there are 100% mortgages, which are mortgages that require no deposit. However, keep in mind that these specialised options carry a higher interest rate.

Calculating and Choosing Mortgages

Many people are curious as to how a lender decides how much to lend them. Because many people still take out mortgages they are later unable to afford, it is important to know how mortgages are calculated and what is expected of a borrower. Firstly, note that lenders will use your income, your age, your credit history and the value of the property you are looking to purchase as the key factors in deciding how much to loan you.

Once a lender has decided the amount of your loan, a deposit amount, interest rate and repayment length must be discussed. The amount deposit can range from 15 - 20%, but some lenders require as much as 30% or more. Generally speaking, the greater the deposit amount, the lower the interest rate - though this is not always true. Finally, you must decide the length of your repayment - which depends greatly on your own financial situation. Consider using an online mortgage calculator to estimate your payments. When it comes to mortgages, it is always better to be over prepared than under prepared.

As people become more familiar with the process, more and more people are choosing to buy their own homes using mortgages to do so. Giving up the hassle of paying rent and reporting to a landlord can be an incredible feeling of accomplishment. When you have your own place, you can begin to live your life exactly the way you’ve always wanted and create a safe haven for your loved ones. Carefully review the mortgages and options available to you, and finally make your property dream come true.

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