Introduction to Mortgages
Buying a home is one of the biggest financial decisions you’ll make in your life and it can sometimes seem a daunting prospect. That’s why we have produced this guide to help you understand what you need to think about and the steps you need to take when buying your home and remortgaging. You’ll find a range of information from what a mortgage is to the costs involved. There’s also a useful step-by-step planner and important information on how to protect your home and family.
Your mortgage adviser is ready to help too. They’re available to provide practical advice at every stage and save you time shopping around for a mortgage that best suits your needs and circumstances.
What is a mortgage?
When you buy your home, you will most likely take out a loan – a mortgage – to pay for it. The mortgage is secured against your home. If you don’t keep up your mortgage payments your mortgage provider, or lender, may be able to sell your home to recover the money you owe.
Whenever the property is sold, as the lender has a ‘first charge’ – or in Scotland a ‘standard security’ – the mortgage must be paid back first. With your home as security, the lender is usually able to offer you a lower interest rate than you find with other types of loan.
How much can i borrow?
How much you can borrow depends on:
- Your income, outgoings and any expected changes to these.
- Your credit history.
- Whether you’re able or prepared to make changes to your lifestyle that may reduce your other outgoings.
- How much deposit you can afford.
You will need to find out how much you can borrow before making an offer on a property. Some lenders will work out how much they’ll lend you before you find a property – this is called an approval in principle. This will help you know the maximum offer you can make on a property and will also speed up the mortgage process.
Lenders usually base their calculations on your guaranteed earnings such as basic pay, but most will also consider some or all of any regular overtime or bonuses. They’ll usually want to see proof of your income.
How long will my mortgage last?
Mortgages usually have a term of between 5 and 40 years. A mortgage should normally be for the shortest term you can afford as this keeps the overall cost down. A longer than necessary term means you’ll pay more interest to your lender.
It’s always advisable for your mortgage term to end before you retire, as your mortgage may not be affordable using your retirement income.