Oracle’s quick guide to mortgages
Property is likely the most expensive thing you will ever buy, so there are some important things you need to think carefully about before you get a mortgage.
A London mortgage is a loan that is secured against the property you are buying. They usually last 25 years, though this can vary.
London mortgage loan-Can you afford it?
Rules are now pretty strict on London mortgage loan lenders giving mortgages to people who cannot afford it, so they will ask you to show some proof that you can afford it, such as income and any debts you might have.
They will also want to make sure you would be able to keep up repayments in the event of interest rates rising.
Before you try to secure a London mortgage loan, you yourself should work out whether you would be able to keep up mortgage repayments, as well as other costs such as insurance, maintenance, and council tax.
Where do you get a mortgage from?
Banks and building societies have a range of mortgage products to choose from, though you could also seek the help of a mortgage broker or Independent Financial Advisor who can help find you the best and most suitable mortgage, even including some products which aren’t accessible through any other means.
Wherever you look for a mortgage, make sure you shop around to find the best deal for you.
How big should your deposit be?
How big should your deposit be? The bigger the better, in most cases.
The deposit is what you have to pay towards your house before you will even get a mortgage.
The bigger the deposit you pay, the less you will have to borrow from a mortgage lender. This lowers the risk for the mortgage lender, meaning they are likely to give you more favourable terms, such as a lower interest rate.
The percentage of the property’s value that you pay as a deposit is the percentage of the property you own outright, so the higher the deposit paid, the less of the property you still have to pay for.
How do you want to repay your mortgage?
There are two main ways of repaying a mortgage – repayment mortgages and interest-only mortgages.
Repayment mortgage: This is the most common type of mortgage. It is when you pay part of what you borrowed as well as some interest each month until the loan has been repaid entirely (usually in around 25 years).
Interest-only mortgage: With this type of mortgage, you only pay the interest on the loan each month.
Since with interest-only mortgages you don’t repay the amount you borrowed during the mortgage term, you will need a way to repay it at the end. This is obviously a big risk, which is why mortgage lenders are becoming more and more reluctant to offer people interest-only mortgages.
Fixed or variable rate mortgage?
Once you have worked out how you want to repay the mortgage, you need to decide which type of mortgage to get.
You can choose between fixed or variable interest rates.
Fixed interest rates: Your London mortgage loan repayments will stay the same for around 2-5 years no matter how much interest rates are changing elsewhere.
Variable interest rates: This type of mortgage means your repayments could go up or down depending on the base rate decided on by the Bank of England.