FREQUENTLY ASKED QUESTIONS ABOUT MORTGAGES


GENERAL MORTGAGE FAQs

  • What is a mortgage?

    A mortgage is a loan used to purchase a property. The loan is ‘secured’ against the value of your property until it is paid off.

    A mortgage is usually comprised of two parts; the capital (i.e. the money you borrow) and the interest (i.e. the charge made by the lender on the amount you owe).

    Traditionally mortgage terms (i.e. the agreed period of time for you to pay off the mortgage) used run for 25 years but these days, mortgage terms are tailored to the individual’s needs.

  • What is a residential mortgage?

    A residential mortgage is a loan used to purchase a residential property, in which you will live.

  • What is a buy-to-let mortgage?

    A buy-to-let mortgage is a loan used to purchase a property that you intend to rent out to tenants.

  • What is a remortgage?

    A remortgage is the act of switching your existing mortgage to a new deal, either with your existing lender or a different provider.

    There can be several reasons for remortgaging, including:

    • To reduce the interest rate on your mortgage.
    • Raising money against your property.
  • How much can I borrow?

    Each lender will have different criteria which determines how much you can borrow and unfortunately there is no set calculation.

    The amount you are eligible to borrow will be determined by the cost of the property you wish to purchase, the size of your deposit, your income and affordability (taking into consideration your monthly financial commitments and any future commitments).

  • What is equity?

    It is the share of the value of your property that you actually own as opposed to that which you borrow as part of your mortgage. So, if your home is worth £300,000, and you have a mortgage of £220,000, you have £80,000 equity in your house.

  • What is loan-to-value (LTV)?

    Loan-to-value (LTV) is a ratio which compares the amount you wish to borrow to the value of the property, represented as a percentage.

    For example, if a house was valued at £200,000, you have a deposit/equity of £50, 000 and therefore needed to borrow £150,000, you have a 75% loan-to-value (i.e. you need to borrow 75% of the worth of the house). 

  • What is a Decision in Principle (DIP)? And why do I need one?

    Also known as an ‘Agreement in Principle’, a DIP is a statement from the lender to say that ‘in principle’ they would lend a certain amount to you based on some basic information. However, it is not a guarantee to lend.

    In almost all cases a DIP will be undertaken by the lender prior to any application being made. The information you provide allows the lender to check your credit file and help them establish if they are happy to lend the amount required.

    If you are looking to purchase a property, estate agents will often want to ensure that when you are making an offer, you will be able to obtain a mortgage (a DIP provides evidence that in theory you can afford to buy the property).

    Depending on the lender, a DIP with either leave a ‘hard’ or ‘soft’ footprint on your credit file.

  • When should I start arranging a mortgage?

    Ideally, you should start the process of applying for a mortgage before you even start seriously looking for somewhere to buy. One reason for this is to find out, most importantly, how much you can afford. Secondly, it helps to prevent problems during the buying process caused by issues with the mortgage.

    If you are remortgaging due to your initial product rate coming to an end, again, it is important to start applying for a mortgage a few months before to ensure you do not move onto your existing lenders variable rate, which is often costlier.

  • How long does a mortgage offer last for?

    Most mortgage offers will last between 3-6 months, but this can vary from lender to lender.

  • What insurance do you need with your mortgage?

    Buildings insurance is usually a mandatory condition of the mortgage. Lenders need to know you have buildings insurance in place, normally from exchange of contracts, as their primary concern is the value of your property. However, it is also important to consider contents insurance, life insurance, critical illness cover and income protection. Please speak to one of our advisers who can provide more information on protection and insurance.

  • What happens if I want to move house?

    Most mortgages are portable, which means you can transfer them from the property that you originally borrowed against to the home to which you want to move. Lenders will want to value the property and you may need to borrow more to secure it.

    Speak to one of our advisers to find out more.


MORTGAGE TYPES – REPAYMENT & INTEREST ONLY

  • What is a repayment mortgage?

    With a repayment mortgage, you pay off both the capital and interest monthly, so by the end of the mortgage term, as long as the payments are kept up-to-date, the loan will be fully repaid.

  • What is an interest-only mortgage?

    With an interest-only mortgage, you only pay the interest due on the amount you borrow. This means you will still owe the amount you originally borrowed when you reach the end of your mortgage term.

    Lenders will require you to have a repayment strategy in place, to ensure you will be able to pay off the capital at the end of the mortgage term.

    Interest-only mortgages are more common with Buy to Let mortgages, as these days interest-only mortgages for residential properties are far and few between.


MORTGAGE TYPES – INTEREST RATES

  • What is a standard variable rate mortgage?

    With a standard variable rate (SVR) mortgage, the amount of interest you pay each month can change.

    Each lender sets their own SVR, and they can raise and lower it by any amount and at any time. It tends to be the default interest rate that applies if you do not have a limited-term deal or discount. Typically, when one of these deals comes to an end, you’ll be transferred automatically onto your lenders SVR.

  • What is a fixed rate mortgage?

    With a fixed rate mortgage, the interest rate stays the same for a set period. This gives you the certainty that for the duration of the set term, you will know exactly how much you will pay each month.

  • What is a tracker mortgage?

    Tracker mortgages are a type of variable rate mortgage, which track the movements of another rate (most commonly, the Bank of England Base Rate). Tracker rates do not match the rates they track but track at a set percentage above or below that rate (typically above). 

    Tracker rates can be for an introductory period or you can get a lifetime tracker (which means individuals would be on it for whole term of their mortgage).

  • What is a discounted variable rate mortgage?

    A discounted variable rate mortgage offers a discount on a certain interest rate; most commonly a lenders standard variable rate.

    The discount can be for an introductory period or it can be for the entire term of the mortgage (a lifetime discounted rate).


MORTGAGE FEES

  • What mortgage fees can I expect to pay?

    There are a number of fees and charges you might need to pay when taking out a mortgage. Below is list of some of the fees you may expect to pay:

     FEES CHARGED WHEN YOU APPLY FOR A MORTGAGE:
    Broker Fees If you use an adviser for your mortgage needs, they can charge a fee. Check with your broker.
    Arrangement Fee (or Product Fee) This is a fee that may be charged for the lender to set up your mortgage.
    Booking Fee (or Reservation Fee) This can be charged upfront when you apply for a mortgage and pays for ‘booking’ the loan, while your application goes through. Some mortgage providers will include it as part of the arrangement fee, while others will only add it on depending on the mortgage size.
    Valuation Fee This is the fee for the lender to value your property and ensure it is worth the amount stated. Some lenders may waive this fee on certain mortgage deals.
    Telegraphic Transfer Fee (or CHAPS) This fee pays for you mortgage provider to transfer the money to your solicitor.
    Legal Fees These will pay for a solicitor to do the legal paperwork for you (known as conveyancing). Mortgages sometimes have offers where they will contribute to these fees or will pay the standard legal fees.
    Stamp Duty Land Tax A form of tax to be paid when you buy a property or land over a certain price in England and Northern Ireland.
     FEES CHARGED AFTER YOU HAVE YOUR MORTGAGE:
    Exit/Closure Fee This is the fee to the lender when you repay your mortgage, even if you are not repaying it early.
    Early Repayment Charge (ERC) If you are on a mortgage deal, and you repay your mortgage before this deal ends, you can expect to pay an ERC. In most cases, it is charged as a percentage of the loan.

    Please speak to one of our advisers to find out more.

  • Do I have to pay mortgage fees upfront?

    Some mortgages fees (such as the Arrangement Fee) can be added to the mortgage. However, if the fee is added to the mortgage, you will pay interest on it, as well as the mortgage, for the life of the loan.

    Some lenders offer fee saver deals, where no or very low fees will be charged.


HELP TO BUY SCHEMES

  • What are Help to Buy schemes?

    The government has created Help to Buy schemes to help individuals purchase their own home. These schemes include Help to Buy: Shared Ownership and Help to Buy: Equity Loan.

  • What is Shared Ownership?

    Help to Buy: Shared Ownership allows you to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. You can then buy bigger shares when you can afford to.

    You can buy a home through Help to Buy: Shared Ownership, in England, if:

    • Your household earns £80,000 or less outside of London (£90,000 or less in London).
    • You are a first-time buyer, used to own a house but can’t afford to buy one now or are an existing shared owner looking to move home.

    You can buy either a new build home or an established home.

    Please speak to one of our advisers if you are considering Help to Buy: Shared Ownership.

  • What is an Equity Loan?

    With a Help to Buy: Equity Loan, the government lends you up to 20% of the cost of a newly built home, so you will only need a 5% cash deposit and a 75% mortgage.

    If you live within Greater London, as property prices are generally much higher, the Government has increased the Equity Loan from 20% to 40%.

    After 5 years, you will begin paying back interest on your Equity Loan.

    Please speak to an adviser for more information.

Call us on 0333 358 0777 for an informal chat to see how we can help – we’d love to hear from you!



Reviews and Ratings for Financial adviser Emma Fanthom, Leicester