Home Loan Articles

A home loan or mortgage is a sum of money borrowed to purchase a residential property for owner occupation, which is secured against the value of the property.

Realistically, a mortgage lender will lend between three and four times your gross salary, although some lenders will offer you more in return for a higher interest rate. In the case of buying with a partner, it is usual for a lender to either take the higher income and offer up to 3 to 3.5 times on that income and add on the second income. They might also lump the incomes together and offer up to 3 times the joint salary. Lenders will look very carefully at affordability and will take into account regular outgoings and subtract them from the calculation before making a final offer.

The next thing to think about is the deposit to buy the house. The more money you can put down as a deposit, the more choice of lender you will have, with a wider range of products. Many lenders will advance up to 95% of the purchase price or value of the property whichever is the lower. There are lenders who will lend up to 100% mortgage but you will pay more. The more you can put in the less you have to repay. Therefore as rule of thumb, the larger the deposit you put down, the lower the rate of interest you will pay.

There are only two types of mortgage:

Repayment mortgage - Over the term of your mortgage, usually 25 years, you pay interest every month and also make a repayment of capital, calculated so that at the end of the term you have completely repaid your mortgage.

Interest only mortgage - As the name implies, you pay interest on the loan throughout the term but no capital which makes the monthly cost lower than a repayment mortgage, but it is up to you to have a suitable savings vehicle that will build up a sum to repay the capital you borrowed at the end of the mortgage term.

Mortgage products

Variable rate mortgage - the interest rate varies throughout your mortgage depending on your lender's own base rate or other indices such as Bank of England base rate or LIBOR (London InterBank Offered Rate)

Tracker rate mortgage - similar to a variable rate but guaranteed to track a particular base rate other than the lender SVR (standard variable rate), whether it goes up or down.

Fixed rate mortgage - The initial rate is fixed for a set period of years ( two to five are the most popular) and then reverts to the lender's variable rate. Particularly useful as a means of knowing what your mortgage outgoings are going to be when having to budget.

Discounted rate mortgage - This is a variable rate mortgage linked to the lender's SVR but offers a discount of between 1% and 2% over the variable rate.

Home Loan Articles