Certus Mortgage Solutions: What is a Mortgage?

It's a large loan for buying a house. Unlike 'personal' loans that can be used to buy anything you like, a mortgage is just for buying property. You can take out a mortgage to buy your main home, a holiday home or even a property to let.

What are the different kinds of mortgages?

Mortgages fall into two camps, 'repayment' and 'interest only'. With a repayment mortgage your monthly payments gradually pay off the amount you owe, as well as the interest charged on the loan. If you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.

With 'interest only', your monthly payments cover only the interest on the loan and you will need to pay separately into a savings or investment scheme in order to build up a lump sum to repay the mortgage at the end of the term. It is your responsibility to ensure you have enough money to repay the mortgage at the end of the term.

How can I find the best mortgage for me?

There's no 'one size fits all' option. Once you've decided on a repayment or interestonly mortgage it's worth talking to a mortgage adviser who can help you find the mortgage package to suit your lifestyle There are lots to choose from , a mortgage adviser or IFA will help you choose the one that provides the money you need at the lowest price, in the way that suits you.

What does a mortgage 'rate' mean?

As lenders don't hand out money for free, you'll be charged interest on the money you borrow. All lenders have their own mortgage rate, and this rate goes up and down depending on decisions made by the Bank of England. The higher the mortgage rate, the more money you'll pay in interest

You can get fixed or discounted interest rates rather than the standard mortgage rate. This might save you cash initially but you may be committed to staying with you lender once the deal ends.

Can I get a mortgage if I have a bad credit rating?

Yes, but your choice of lender and type of mortgage may be limited. You'll usually pay a higher mortgage rate than if you had a clean credit record. This may be up to around two per cent higher than the standard mortgage rates. In some cases there may also be other costs associated with setting up the mortgage.

What's a 'flexible' mortgage?

It means you can overpay, underpay, take payment holidays and borrow back money without facing penalties. The number one reason for having a `flexible' mortgage is so you can overpay and clear your mortgage as quickly as possible. But it also means if finances get tight, say after having a baby or moving jobs, you can borrow back money without the threat of repossession.

How much do I have to pay each month?

Let's say you're looking at a property with a £150,000 price tag. Putting down a 10 per cent deposit will leave you with a mortgage of £135,000. If you can secure a fixed rate of say 4.99 per cent, you'll pay around £785 a month for a repayment mortgage and £560 for an interest-only mortgage. A one per cent rate rise would add another £100 a month to the interest payment on this loan. (Check our Mortgage Calculators for more information).

How do I work out how big a mortgage I can afford to have?

Most lenders will loan you around three times your annual salary. If you're buying with a partner you'll usually get two and a half times your joint income.

Some lenders work out how much they'll lend based on what you can actually `afford' each month. So instead of looking at your gross salary they look at what's left after you've paid bills, credit cards, car loans and any other big bills. The trick here is to make sure you can still afford the monthly repayments if mortgage rates go up. (Check our Mortgage Calculators for more information).

How long are mortgages usually for?

Mortgages are traditionally for 25 years but it's now more common to have mortgages for 15 or 20 years. Clearing your mortgage debt as quickly as possible means you'll save yourself money in the long term by paying less interest.

How much do I have to pay for the deposit?

Typically between 5 per cent and 10 per cent of the purchase price of the property. That's between, £10,000 to £20,000 on a £200,000 house. The bigger your deposit, the better the deal you're likely to get. It's possible to get 100 per cent mortgages but you may not be able to get the most competitive rates, as most lenders like to see you've got a bit of cash to your name before they'll put their hand in their pocket.