A mortgage is a large loan that is secured against a property. The mortgage provider will lend you money equivalent to the value of the property, generally in order to allow you to purchase the property outright. You then pay back the mortgage over time, in a manner that will depend on the specific mortgage product taken out. The factors that will affect the mortgage payment is the type of Mortgage you take out, the amount of loan, the interest rate and the mortgage term, which refers to the amount of time it will take you to pay off the mortgage. These factors will vary among individuals, therefore, a mortgage will be different for each person.
How long do mortgages normally last?
Typically, mortgages last around 20 years, but in reality this can change according to a whole variety of factors. When you set up your mortgage you will decide the term (i.e. the length of the mortgage) according to your repayment plan.
How big a mortgage can I take out?
Exactly how much you can borrow will depend on various factors to do with your financial situation as well as, of course, the value of the property that is being put up as security.
Firstly, the lenders would have to conduct a financial evaluation, taking into account your net income, with your regular outgoings and expenses factored in, in order to work out how much you can borrow. They will also look at your credit score and any loans or credit cards you currently have.
If you are using your mortgage to purchase a property, then you will need to work out what size deposit you can pay or are required to pay upfront before a mortgage lender will lend you the rest. The size of the deposit that you are required to pay will depend on your financial situation and credit history. The difference between the amount borrowed and the actual value of the property is known as the loan-to-value ratio or LTV.
For example, let’s say you want to purchase a property worth £300,000, and you’re told you need to come up with a deposit of 10% (£30,000). Your mortgage provider then lends you £270,000 which, compared to the original property value, gives you an LTV of 90%.
Generally speaking, a lower LTV (and so a bigger deposit) is the safer option, allowing you to get better deals all around and, of course, since you’re borrowing less in the first place, your monthly repayments will be smaller.
The best thing you can do to get the best deal given your financial situation is simply to extensively compare different mortgage plans via a mortgage adviser. This will allow you to go over the various different plans that are on offer so that you can easily see what kind of deal you could expect.
To get in touch with our Mortgage Adviser for fee-free advice, please call us on 01252 416516 or email us at [email protected].
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