This is only a brief summary. For the full guide click below.
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A mortgage is a special loan for buying property, where the property is security for the loan. Paying back the mortgage includes capital (the amount borrowed) plus interest.
Traditional mortgages are arranged over a 25 year term with payments due monthly. Changing the term length will change the amount due each month.
For lenders to assess your mortgage application they will obtain a credit check.
Repaying the mortgage
Repayment mortgage – where you pay back part of the capital as well as the interest due each month
Interest only mortgage – where you only pay the interest on the loan each month and pay off the capital at the end of the loan term
Different interest rates
Fixed rate – you pay a set rate for a set period of time with no changes.
Variable rate – the monthly repayments can go up and down according to the lender’s interest rate, usually linked to the Bank of England base rate.
Tracker rate – a variable rate linked to the Bank of England base rate by a fixed amount.
Discount rate – a variable rate that is discounted from the lender’s standard rate as a short-term offer.
Capped rate – a variable rate where your payments are capped at an agreed rate, even if the interest rate goes higher. A ‘collar’ is a variation of the capped mortgage, where there is a rate below which your mortgage cannot fall.
Flexible mortgages – usually a variable rate mortgage, with flexible features such as allowing overpayments and varying amounts and timing of monthly payments.
Mortgage arrangement fees
Valuation fee – lenders require a standard valuation report of the property you are to purchase. Fee payable with the mortgage application and usually non refundable.
Booking fee/arrangement fee – charged by lenders for setting up mortgages other than standard variable ones.
Legal fees – paying a solicitor to do the conveyancing.
Stamp duty land tax – government tax on the purchase of property, payable at completion, between 1 and 4% of purchase price, depending on cost of property.
Mortgage broker fees – your broker should inform you up front of the cost of their advice and assistance.
