Often having a bigger deposit will also open up better offers, saving you money. This is because the lenders will have to give you less, and it will be easier for you to pay it back.
Whilst 10% is usually the minimum for a deposit (unless you are using a Help to Buy scheme, or certain mortgages where 5% is accepted) having your deposit be a bigger percentage of your property price will put you in a better position. That’s why they do mortgage affordability tests. Your mortgage offers will be dependent on a few factors: Mortgages are taking a chance on you – they’re giving you a huge amount of money and they have to trust that you are likely to pay it back. This is mainly only available for buy to let properties.
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This means you don’t put any equity into your property and at the end of the loan term you still don’t own the property and owe the lender the full amount. So at the end of the term, you own the property and you’ve paid the interest off in full.Īn interest only mortgage is just that – you only pay the interest. Repayment mortgages ensure your monthly payment goes towards both the property value and the interest you owe. It’s rare to have an interest only mortgage at the moment, as more lenders focus on offering repayment mortgages. It really comes down to what you can afford – even if you can’t afford a more expensive monthly amount, most lenders will allow you to overpay a certain amount without any charges (usually 1% of the total) over the year, so you can bring down your mortgage.
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Going back to the above example, if you paid the £180,000 plus 2% interest back over 15 years instead of 25, you would pay £1158 a month, but your total repayment would be £208,497. If you can afford a higher monthly mortgage repayment, you would pay a lower total amount. As interest is cumulative, paying more of it off sooner often means you pay less interest. You can use a mortgage calculator to work out how much your monthly repayments might be. (Mortgage calculations are fairly complicated, but roughly, the interest is worked out based on the percentage on the remaining amount you owe each year for the full length of the mortgage.) If your mortgage term is 25 years, the monthly repayment amount would be £763. If you had a deal with 2% interest, the interest would be £48,922. That means you need a mortgage of £180,000.
If you are buying a property worth £200,000, you will likely need a deposit of £20,000. Here's an example using a repayment mortgage: This means that the total amount of the mortgage, including the interest, has been split over the years it will take to repay it, and that’s how much you pay every month. Most mortgages have a repayment term of around 25 years, but you can get them for shorter or longer periods of time. The mortgage lender will work out an appropriate repayment amount each month, and this will include the interest that they charge you on the loan. So they pay a deposit (usually at least 10% of the asking price) and then they apply to a mortgage lender (like a bank or building society) for the rest.Ī mortgage is a large loan on your property that you will pay off on a monthly basis. For most people, they won’t have the whole amount for the asking price in cash.
Finding the right mortgage for you doesn’t have to be stressful! What is a mortgage?Ī mortgage is, simply put, a loan that you get in order to buy a property. We’ll go through everything, from what a mortgage is, how you get one and what one might be best for you, along with links to our other guides so you can continue learning. Especially if you’ve never had significant debt before.
From APR to tracker, fixed rate and every other type of jargon, it’s not always the easiest thing to work out. It’s completely normal to feel overwhelmed when it comes to mortgages. Mortgage - Eager to get on the property ladder but have no idea where to start? We’ve got a complete guide to mortgages to get you started.
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