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Mortgages seem really complicated things – but they are not really. This blog simplifies the topic of mortgages by looking at some frequently asked questions about them…

What is a mortgage?

It is a secured loan given to a borrower for the purchase of a property. It is secured on the property by registration at HM Land Registry as a “charge”.

The borrower makes a monthly payment of interest or interest and capital  to the lender during the mortgage.

Where the borrower pays only interest, the capital debt remains outstanding at the end of the mortgage term.

Where the borrower pays interest and capital, the capital debt is fully repaid at the end of the mortgage term – leaving the borrower with a  property free of mortgage.

What is the term of a mortgage?

It is the length or duration of the mortgage, usually between 20 and 30 years.

Can I get a mortgage if I have a poor credit record?

There are a great many lenders, each with different lending criteria. Even with a poor credit record, it is likely that there will be a lender willing to lend to you.

How much can I borrow on a mortgage?

That will depend broadly on the amount you earn, your financial outgoings and your credit score.

The traditional method of working out the amount you can borrow is to multiply your annual earnings by a multiplier of between 2.5 and 5 typically.

These days however, the emphasis is on affordability – with lenders carefully assessing your income and expenditure to work out the maximum amount of borrowing you can safely afford. 

What is an interest only mortgage?

This is a mortgage where during the mortgage term you pay back only the interest on the amount borrowed, with the capital payable at the end of the term.

What is a repayment mortgage?

This is a mortgage where during the mortgage term you pay back interest plus a part of the capital borrowed, with the capital being fully repaid by the end of the term

What is an off-set mortgage?

This is where any savings you have are used to offset or reduce your mortgage balance,thereby reducing the overall amount of interest you pay.

For example, your mortgage debt is £200,000 and you have savings of £50,000;  the £50,000 would reduce the mortgage balance to £150,000 and you would pay interest on that reduced amount.

Are you sitting on a mortgage time bomb? (the dangers of interest only mortgages)
Interest only or repayment? (which of these two mortgage types is best for you?)
Repayment mortgages (the nature and benefits of repayment mortgages)
Interest only mortgages (the nature and benefits of interest only mortgages)

What is a variable rate method of payment?

This is where you pay interest at the standard variable rate (SVR) which will fluctuate from time to time – usually in line with changes in the Bank of England’s base rate.

What is a tracker rate method of payment?

This is where the interest payable tracks the Bank of England’s base rate at a fixed percentage above it (typically 0.5% to 2%)

What is a fixed rate method of payment?

This is where the rate of interest remains fixed for a specified time – usually 2 to 5 years. At the end of the fixed period, the standard variable rate will apply.

At what age can I get a mortgage?

Usually you can take out a residential mortgage at 18 and a buy to let mortgage at 21.

At what age can I no longer get a mortgage?

Because people are living longer, lenders are more inclined to lend to older people than in the past. Some lenders will allow you to take out a mortgage up to the age of 70. Some lenders will allow the mortgage to be outstanding up to the age of 85.

Can two people take out a mortgage?

Yes they can. Each borrower will be liable for the whole of the mortgage debt if the other fails to pay.

Can I take my mortgage with me if I move to a new property?

If the mortgage is “portable” you will be able to do so, subject to your financial eligibility. If the mortgage is not portable you will need to pay it off and take out a new mortgage.

Will I be charged if I pay off my mortgage early?

If your mortgage is subject to early repayment charges, you will be charged for paying off your mortgage during the period when early repayment charges apply.

Many lenders will allow you to pay off up to 10% of the mortgage amount each year without incurring early repayment charges.    

Do you have any questions, observations or comments about mortgages? Please leave your comments below.

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Dalton Barrett
Rebel Property Coach

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