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8 frequently asked questions about mortgages… answered

August 12, 2019
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When you first start looking for a new home, the process of securing a mortgage can be completely overwhelming. With this in mind, we have put together this guide to the eight most commonly asked questions about mortgages, complete with answers. 

1. What are the main types of mortgage?

Mortgages can be split into four main categories: repayment mortgages, interest only mortgages, cashback mortgages and buy-to-let mortgages. Within these main mortgage categories, there are further sub categories.

Repayment mortgages

With a repayment mortgage, you are making payments towards the principal amount plus any additional interest. Payments are usually set for a number of years, usually over 25 years. The type of mortgage you choose will depend on your affordability. For example, a tracker mortgage will track the Bank of England base rate, meaning that your payments could go up or down. You should only choose this if you can afford your payments to increase. A fixed rate mortgage, on the other hand, will give you fixed repayments for a set period, usually 2, 3, 4 or 5 years. This can be ideal if you want to set a budget and stick to it.

Interest-only mortgages

With an interest only mortgage, you payments will be lower as you are only paying off the interest. At the end of the term, you will need to pay off the mortgage in full, so you should only choose this if you will be able to save the money to pay off your mortgage at the end.

Cashback mortgages

This is a kind of incentive that rewards the applicant with a lump sum once the mortgage is paid out. It can work out more expensive, but if you need help with moving or renovation costs, it can be a useful option.

Buy-to-let mortgages

If you plan to let out the property, you would need to apply for a buy to let mortgage. With this type of mortgage, the rental payments of the property will need to be enough to cover the mortgage payments.

2. How does mortgage interest work?

When you apply for a mortgage, the lender will decide how much interest you will pay. This is usually calculated based on how much deposit you can provide. Those with a 40% deposit will be offered better interest rates than those with a 10% deposit. 

3. Are my mortgage payments tax deductible?

The interest portion of the mortgage repayments can be tax deductible, but only if you rent out the property. You will also need to declare your rental income on your tax return.

4. Do I need a mortgage broker?

You don’t have to use a mortgage broker, you can go directly to the bank or building society to make an application. However, there are benefits to working with a broker. Perhaps the most obvious is that they will have in-depth knowledge of the mortgage market and will be able to advise you on the best course of action.

5. Which mortgage brokers are the best?

When choosing a mortgage broker, you should always opt for a ‘whole of market’ broker. This means that they have access to a wide pool of lenders and are not affiliated with any one lender. This will ensure you can work with your broker to find the best possible deal from a lender that is likely to accept your application.

6. Which mortgage should I choose?

This will all depend on your financial situation. You will need to think about your current circumstances and how your circumstances might change in the future. Working with a mortgage broker can help you to understand your options and make sure you are able to make an informed choice.

7. Who are mortgage underwriters?

The mortgage underwriters work for banks and make a decision as to whether they should accept or decline a mortgage application. They are trained to look at a number of factors to assess the risk of lending to an individual or couple. They also decide if a bank should lend money for specific properties.  

8. What happens when I have paid off my mortgage?

Once you have completed your mortgage payments, you own your home completely. You should receive a letter from your lender confirming that your repayments are complete. If you decide to sell your home, you will be able to keep all of the proceeds of the sale.

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