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Mortgage guide

Taking on a mortgage is a huge life decision, and one that shouldn’t be taken lightly. After all, it’s probably the biggest single amount of debt you will take on in your lifetime! With this in mind, when you’re thinking of taking on a mortgage, it’s important that you are fully informed and prepared, ensuring that you make the right decisions for your individual circumstances.

Are some of the things you should consider before making any decisions….

How much can you afford?

Before taking out any sort of mortgage, it’s important that you carefully consider how much you can afford to borrow and repay. Although it might be tempting to borrow the absolute maximum and buy your dream home, you need to seriously consider whether or not you can afford to keep up with the repayments – you don’t want to be struggling, especially when you take into account the other expenses that come hand in hand with owning a property, such as bills, insurance, and maintenance.

Any potential lender will also need to see proof of your income and existing debts and expenditure, as they need to be completely satisfied that you’ll be able to keep up with your repayments.

Have you got a big enough deposit?

Unfortunately, those glorious days of a deposit-free mortgage are now long gone. Today, you’ll almost certainly need to save a substantial amount of cash together in order to secure a decent mortgage at an affordable interest rate.

As well as proving that you are solvent and have a good level of financial discipline, your deposit also reassures the mortgage company as their loan becomes less of a risk, the larger the deposit. The larger the deposit, the more their investment is protected.

To secure a mortgage, you usually need to have a deposit of at least 5% but, to access the better rates and deals, you usually need at least 20%. The bigger the deposit you are able to offer, the better the interest rate, meaning the lower your monthly repayments, and as a result, the cheaper the mortgage.

So the more cash you’ve saved up for your deposit, the better!

What type of mortgage best suits your needs?

There are three different types of mortgage available, and the difference between them involves the way in which you make repayments.

Repayment Mortgages

If you take out a repayment mortgage, you will pay the interest and part of the capital (the original amount borrowed) each month. At the end of the agreed term, you should have naturally paid off all of the mortgage and own your home outright.

Interest-only Mortgage

If you opt for an interest-only mortgage, your monthly repayments only cover the interest on   the total amount borrowed – you don’t pay anything off the original capital borrowed. Whilst this, naturally, makes your monthly payments considerably less, you need to ensure that you have a payment plan in place to pay off the borrowed capital at the end of the mortgage term.

Combination of Interest-only and Repayment Mortgages

If you would prefer, you can ask your lender if you can combine the options and split your mortgage loan between a repayment mortgage and an interest-only mortgage.

Once you’ve chosen how you want to pay back the capital borrowed and the associated interest, it’s time to think about whether you would prefer a fixed or variable interest rate.

Fixed Rate Mortgage

If you choose a mortgage that offers a fixed rate of interest, your repayments will remain fixed for a set period of time (this varies from mortgage to mortgage but is usually two to five years), irrespective of variations in the wider market.

Variable Rate Mortgage

The amount of interest paid on a variable rate mortgage varies in line with the Bank of England base rate.

Get In touch with Mortgage broker Ayr for more information