Choosing the right mortgage product has become even more complicated lately with lenders increasing interest rates and tightening criteria in a bid to minimize their risk.

How a mortgage works

A mortgage is a loan taken out to buy property or land.  Most run for 25 years but the term can be shorter or longer. The loan is ‘secured’ against the value of your home until it’s paid off. If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back

Mortgages explained

Mortgages are complicated. So we’re making them simple. Whether you’re a first-time buyer or longtime landlord, here’s a short explanation of the most common.

To get a mortgage, you’ll need a deposit, which is usually a minimum of 5% of the total price of the property you want to buy. The bigger the percentage you come up with upfront, the less of the loan you have to pay off over the mortgage term. Plus, many mortgage rates reduce for every 5% you can put down in your deposit.

Remortgaging means changing your mortgage deal, either by switching to a different lender, or staying with your current lender but getting a different rate from them.

The idea of remortgaging is:

  • Ideally, to cut your monthly mortgage payments.
  • Or to release money from your property by borrowing more money against it.

A buy-to-let mortgage is a mortgage for a property you’re renting to someone else, rather than living in yourself.

If you rent out your property, you’re a landlord. As a landlord, you can start charging rent to cover your mortgage repayments and the costs of maintaining your property.

With shared ownership, you co-own your home with a housing association. You buy a share of the property, usually between 25% and 50%, and a housing association owns the rest.

It’s a mix of buying and renting. You take out a mortgage on the share you want to buy, and pay rent to the housing association on the remainder.

For the mortgage part, you’ll still need a deposit. But while standard mortgages ask for 10% of the whole property price, a shared ownership mortgage only asks for 5% of the share you’re buying.

Every month you only pay the interest on your loan. Your monthly payments will be lower, but they won’t make a dent in the loan itself. At the end of the term, you’ll get a bill for the total loan amount, which means you’ll either need to have saved up in the meantime, or sell your home to pay it back.

Every month, you pay an amount off the debt itself (the capital) and the interest as well. Month on month, your balance (the amount left on your loan) will go down and by the end of your term, you’ll have paid the loan off in full.

You can also choose the type of interest rate you’d like applied to your loan. Broadly, there are two types: – Fixed rates, that guarantee exactly what you pay over a particular length of time, eg 3 years or 5 years – Variable rates, that tend to be cheaper but are less predictable.

Ready to sort out your Mortgage?​

If you're thinking about a new mortgage, re-mortgage or Buy-to-let, we can help.

Our website offers information about investing and saving, but not personal advice. If you’re not sure which investments are right for you, please request advice, for example from our financial advisers. If you decide to invest,  remember that investments can go up and down in value, so you could get back less than you put in.

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