What's the Best Way To Choose The Right Mortgage?
The first step to taking out a mortgage is to work out your budget and find a suitable mortgage lender. But instead of racing around all of the choices available - banks, building societies and other financial service companies, why not talk to one of our experienced mortgage advisers. Our mortgage adviser can give you comprehensive advice on mortgages from all of the UK’s leading lenders. They can also help you work out the best way to repay the loan. Working alongside them, you can be confident of making the right decision.
How To Go About Borrowing?
You may suffer if you overstretch yourself by borrowing too much. Working out how much you can afford to borrow and how much deposit you can put down, is a crucial part of the home buying process. Remember, the type of mortgage deal you’re offered depends on the loan to value (LTV) ratio. This is how much you need to borrow, compared to the value of your house. If you put down a larger deposit on your home, you may get a better deal than if you tried to borrow as much as possible.
Can I Find The Right Mortgage For My Employment Status?
Whether you are employed, self-employed, or thinking about going self-employed, our mortgage adviser can find a mortgage that’s right for you.
How Much Can I Afford to Borrow?
If in full-time employment and you intend to take out a mortgage based on a single income, you can generally borrow between 3 and 3.5 times your gross annual income. If you and your partner intend to take out a mortgage based on your joint income, you can generally borrow between 2.5 and 2.75 of your combined gross annual income OR 3 to 3.5 times the higher income plus 1 to 1.5 times the lower income. People who are self-employed generally need to provide three years' accounts, on which basis the lender works out how much they would be prepared to lend, but for those just starting out they may not yet have any accounts to work with. This need not stop the self-employed from arranging a mortgage, although usually a bigger deposit is needed. We have many years experience in helping self-employed clients obtain a mortgage and can guide you through the various options.
What's the Best Way To Repay My Mortgage?
Once you’ve decided on the type of mortgage you want, the next step is to choose how you will repay it. There are two main options – repayment and interest only.
Repayment (Capital & Interest)
Each payment you make consists of the interest due, together with a portion of capital repayment, which reduces the amount outstanding. Every year, the outstanding loan will go down slightly, until you’ve paid it off completely. In the early years, most of the payment is interest. In later years, however, a greater amount is used to reduce the capital borrowed. It’s advisable to take out a life assurance policy to run alongside a repayment mortgage. You can then be sure that your home will be safe if you or your partner dies. It also makes sense to look at critical illness cover and income protection plans to help meet your mortgage payments if you become too ill to work.
Interest Only
You only pay the interest on the amount you’ve borrowed until the end of the mortgage term. You will need to make separate arrangements to repay the loan at the end of the term.
Interest Only Repayment Methods
Lenders will require the borrower to ensure that there are sufficient funds available to repay the mortgage at the end of the term. There are a number of ways this could be achieved, such as using an endowment policy, saving via an Individual Savings Account (ISA), or using a personal pension plan (or even a combination of these).
Can You Explain About Mortgage Repayments?
Endowment
This is a mortgage repayment vehicle designed to generate a sum of money, which can then be used to repay your outstanding mortgage at the end of the term. Endowment plans include several additional standard features, such as life cover and critical illness cover, which will pay off your mortgage if you die, or suffer a critical illness.
ISA
ISAs offer tax-free returns and a wide choice of investment funds, but do not include life or critical illness cover. This cover will need to be arranged separately. The Government has indicated that it is committed to maintaining the availability of ISAs in the long-term.
Pensions
If you have a personal pension plan, on retirement, you could use the tax-free cash lump sum to help repay your mortgage. The drawback with this option is the reduction in pension income you would subsequently received. Life cover can be included in your pension. You cannot normally take retirement benefits before your 50th birthday meaning less flexibility should you want to repay your mortgage early.
How Can I Protect my Mortgage?
Regardless of how you make your mortgage repayments, you’ll no doubt want to make the necessary arrangements to help ensure that your personal and financial requirements are met. Financial planning may include taking out life cover, critical illness cover, as well as income protection plans.
Life Assurance
Whatever type of mortgage you choose, you’ll want to protect your family should you die or suffer a critical illness, before the end of your mortgage. That’s where life assurance comes in. Most endowments and some pension plans have life cover built-in. If you have a repayment mortgage, you should arrange separate life cover. There are many different types of life assurance and we can help you choose suitable cover for your needs.
Protecting Your Income
Whichever method of repaying your mortgage you choose, you should also consider protecting your mortgage and associated payments if you were to lose your job. It’s also a good idea to take out insurance against long-term illness or accident, which might also make it difficult for you to make monthly repayments.
Protecting Your Home
You will need to insure your home. All mortgage lenders insist you take out cover for the building itself but it’s advisable to take out insurance to cover your contents as well.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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