Mortgage Loans: Knowing Your Options

Understanding Mortgage Loans

Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui

Mortgage Loans Allows You to Use Your Property as Collateral and Also Gives You the Opportunity to Take Out a Much Larger Loan than You Normally Would. Let's Discuss What Mortgage Loans Are, How They Work, and Why You Might Want One!

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What are Mortgage Loans?

Is owning a property on your bucket list in Dec 2021, but you only have the kind of cash to cover a deposit?

Well, there might be a solution! We’re here to educate you on the world of mortgages so you can find the perfect solution to becoming a property owner.

We’ll help you discover:

  • What’s a mortgage?
  • What do you need to apply?
  • Your mortgage options.

While we specialise in later-life mortgages, we’re here to guide all ages. So whether you’re buying your first home or need a brush-up, here’s a guide to understanding mortgages.

Check it out!

What’s a Mortgage?

If you’re looking to buy a home, you’ll usually opt for a mortgage if you can’t pay for the property in cash.

A mortgage is a common type of debt that you take on by borrowing money from a lender with real estate as collateral. You’ll need to produce enough revenue to repay the loan and interest over time.

As a homeowner, you can borrow money from financial institutions and pay it back over an extended period of time. In addition, the loan will incur interest that’ll need to be covered. The initial mortgage is used to pay for your home, and as you pay it off, so will more collateral become available.

There are many types of mortgage loans available in Dec 2021, each with its own pros and cons for different circumstances, as we’ll later discuss.

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What’s the Process of Getting a Mortgage in Dec 2021?

Are you considering applying for a mortgage to buy a home? You’ll need to get in touch with a financial adviser, mortgage lender, or broker. Here’s everything that you need!

You’ll then start by gathering all of the documentation you’ll need for the mortgage application. These could include:

  • A utility bill.
  • A proof of the benefits that you receive.
  • A P60 form from your employer, if you have one.
  • Your last 3 months’ payslips.
  • A proof of identity.
  • 3 to 6 months worth of bank statements.
  • 3 year’s audited accounts if you’re self-employed
  • A tax return form SA302 if you earn from more than one source or are self-employed.

To save yourself from experiencing a back and forth, be accurate in the information you survive. Ensure that everything matches what’s on your documentation. For example, don’t round off your salary. Instead, give the exact amount on your payslip.

You’ll need to give your estate agent and solicitor’s details, as well as the address of the property you’re intending to buy.

In addition, some lenders may have different criteria for income and expenditures. Check with your lender or an independent mortgage adviser as to what else you’ll need.

After obtaining a mortgage, you must repay the amount borrowed plus interest over a period of around 25 years, though mortgages can be obtained for longer or shorter periods in the United Kingdom. What’s more, the loan will be secured against your home until it’s fully paid off.

Be warned!

If you don’t repay the loan, the lender has the right to repossess your home. In the United Kingdom, you can secure a mortgage on your own, or with 2 other people.

What Are Your Options for Obtaining a Mortgage?

Mortgages are issued by financial institutions; with banks and building societies lending the majority of mortgages in the United Kingdom.

You can get a mortgage in 1 of 2 methods.

  • Applying Directly – You can get a mortgage from the lender directly and discover the best deal.
  • Using a Broker – You might also use a mortgage broker or an independent financial expert to help you find a mortgage.
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What Kind of Loan Do I Require?

There are numerous sorts of mortgages, each tailored to different financial circumstances. Here’s how to figure out which mortgage is best for you:

  • Mortgages for First-Time Homebuyers – Even if you only have a tiny deposit, first-time buyer financing can help you acquire a property. There are also financing and programmes specifically designed to assist first-time homebuyers.
  • Help to Buy Mortgages – These can help you buy a property if you only have a little deposit and need government assistance.
  • Right to Buy – This scheme allows you to purchase a council house at a reduced price and use the savings as part of your deposit.
  • Guarantor Mortgages – If a relative or friend is willing to be named on the mortgage with you and cover any payments you miss, these mortgages could allow you buy a home with a small deposit.

What’s the Cost of a Mortgage?

The amount you must pay each month and during the life of your mortgage is determined by the contract you obtain and the property’s worth. The costs of a mortgage are detailed here, as well as how to determine if you can afford one. The following are the major expenses:

Interest – The interest rate will influence the total amount you must repay as well as the amount you pay each month. It is calculated as a percentage rate on the amount you owe and is levied over the life of the loan.

Mortgage Fees – When you get a mortgage, you’ll have to pay product fees:

  • When you apply for a mortgage, whether you take it out or not, you may be charged an application fee.
  • Your lender may demand valuation fees in order to determine the value of your home.
  • Some mortgages offer higher lending charges if you have a little deposit.
  • When the bank transfers the money they are loaning to you, telegraphic transfer costs are levied usually to your solicitor.
  • If you take out a mortgage recommended by a broker, you may be charged broker fees.
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Will You Be Able to Get a Mortgage?

Each mortgage lender has its own set of rules and regulations. Lenders will consider the following variables when deciding whether or not to offer you a mortgage and how much they are willing to lend you:

  • The property’s market worth
  • Your down payment
  • Your age
  • The duration of the mortgage
  • Your financial history
  • Your earnings
  • If you’re applying on your alone or with a partner
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In Conclusion

For those who are looking to purchase their first home, a mortgage loan is an option that can help them afford the house they want. A mortgage loan allows you to borrow money from a bank or lending institution so that you can buy property by paying it back over time with interest.

The payment will depend on what type of mortgage deal you choose and how much you’re borrowing for your new property. With different types of loans available, there’s sure to be one that meets your needs!

Are you or your parents aged 55 or older? Discover the world of lifetime mortgages right now.

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

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Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.
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Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.
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Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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