Mortgages should be understood to be a long-term commitment and accepting that during that commitment it is highly likely that your circumstances will change along the way. So when you look at a mortgage you should have an understanding of both your short-term goals and needs as well as those much further down the line.
A mortgage can be looked at as two parts;
1. The Capital i.e the money that you actually borrow and;
2. The Interest. This is the charge made by the mortgage lender for borrowing the capital and is charged until the loan is fully repaid.
Mortgages can be either repayment, interest only or a mixture of the two.
The most popular option, a repayment mortgage offers the benefit of knowing that your mortgage balance decreases with each repayment and at the end of the term the mortgage will be repaid in full. With this type of mortgage, you will be repaying both capital and interest each month.
Interest Only Mortgage
The number of providers that offer this option has reduced from previous years but they do still exist – in fact more and more lenders are dipping their toes back into this market as stability returns to the sector.
With an interest only mortgage, each monthly payment is made up only of the interest on the amount that was initially borrowed. The monthly repayments on an interest only mortgage are usually lower than those of a repayment mortgage however, at the end of the mortgage term the amount that you initially borrowed (the capital) will still be outstanding and this whole amount will be required to be repaid. The mortgage lender will usually require to see evidence that there is an adequate repayment plan in place that runs alongside the mortgage to clear the outstanding capital borrowed at the end of the mortgage term. It may also be the case that the lender requires a higher deposit or that you earn over a particular amount before they offer this type of mortgage.
There is also the option to have a mixture of both of the above however again these are fewer in availability when compared to repayment mortgages.
As an expert mortgage broker we do the hard work for you! So if you’re looking for a mortgage or simply have questions that you need answering, why not get in touch? We’d love to hear from you. We service clients from all over the UK and our initial consultations are always free!!!