Mortgages, Remortgages & Home Loans

A mortgage is a loan that you take out to buy a house and is secured on the property you are buying. A remortgage replaces your existing mortgage loan with one from a different lender. A home loan, also called a home equity loan, is a type of mortgage loan that you take out to purchase other items such as a car or as a home improvement loan etc.

A mortgage is almost exclusively used for buying a house. However, if you can get more money than you actually need for buying the property, the excess can be used to buy other items. Remember that all these purchases will be made over the typical repayment period of twenty-five years, so for example, it would be a long time to repay a car loan. However, if it is an expensive model such as a Rolls-Royce, Mercedes or BMW, it might be worth considering as the monthly instalments will be surprisingly low.

You can remortgage your house simply by moving your existing mortgage to another lender who gives you a lower rate of interest. However, beware of any charges made to terminate the old mortgage and arrange the new one.

If you have an adverse credit history and you are seeking a bad credit mortgage loan, please read this page in conjunction with our Bad Credit Loans page.

Equity is the value of your house less the amount of your mortgage still owing or of any other charge or loan secured on it. If you have been paying a mortgage for some time, or if your home has increased in value or you own your house outright, you can use the equity to remortgage, take out another mortgage, and release the capital for another purpose. Providing you have enough equity in your property, a home loan or remortgage can be used to finance home improvements, car purchase, and many other projects.

Most mortgage loans run for a period of twenty-five years and can be obtained not only from high street banks and building societies but from a range of independant financial houses. Most lenders will expect you to put down a deposit of at least 5% of the purchase price but some may consider giving you a 100% mortgage. You will normally be able to get a mortgage equivalent to three times your annual salary. However, if it is a joint mortgage you can generally get up to 2.5 times your combined salaries or 3 times the largest salary plus the second. However, your financial circumstances such as existing loans and commitments will be taken into consideration so the above figures may be reduced. The lender will, in many circumstances, write to your employer for confirmation of salary and any bonuses contained in the total amount you claim as your income.

Although there are basically three different types of mortgage, ie. repayment, interest only, and flexible, these groups can also be subdivided into further categories such as variable rate, fixed rate, drawdown, etc. All these terms are described below.

Repayment Mortgages

With this system you pay monthly instalments that consist of both interest and repayment of the capital borrowed. At the end of the term, as long as you keep up the payments, the house is yours.

Interest Only Mortgages

Monthly payments are made to the lender that consist of interest only. They are therefore considerably lower than you would make for a repayment mortgage. However, at the end of the loan period you will have to pay off the outstanding debt which is equal to the sum you borrowed in the first place. Obviously, after twenty-five years, inflation may make the figure look very reasonable but you should NOT rely on this happening! It is a good idea, if not essential, to make contributions to a savings plan dedicated to paying off the loan at the end of the twenty-five year period. Endowment or ISA (Individual Savings Account) plans are frequently used for this purpose. Currently, endowment backed mortgages are out of favour as many have been optimistically oversold.

To get their foot in the house buying market, many people start with an interest only mortgage because repayments are cheap and then remortgage to a repayment option when they can afford it.

Offset Mortgages

This type of mortgage works by "offsetting" savings you hold on deposit against the money you have borrowed. For example, if you have borrowed £100,000 to buy a flat and you have savings of £10,000, you only pay interest on £90,000. Although you will not receive any interest on your savings it will be more than compensated for the interest you will save on the mortgage. The account in which your savings is held is called a linked account and you are still able to use this money at any time. However, please note that offset mortgages usually cost more than conventional ones so the savings may not be as great as they first seem.

Flexible Plans

These are designed, as the name suggests, to give you the option to decrease or increase monthly payments or even stop them for a certain time.

A drawdown mortgage is a special type that allows you to buy a delapidated property for renovation. You are provided with a sum that allows you to start work and as the work progresses, and as the value of the property increases, you are allowed further amounts to "draw down" as needed.

Further Options

The above plans can be obtained with options that allow interest rates to rise or fall with the bank base rate (variable rate) or with fixed monthly payments (fixed rate). The interest rate may also be "capped" so that the rate is variable but not allowed to rise above a certain figure or, conversely, it may have a "collar" where it is not allowed to fall below a certain figure.

You may also find a lender that gives a "cashback offer" as an incentive to do business with them. When you finally agree to obtain a mortgage or remortgage from that lender they will give you some cash back which may be in the form of a free survey or will meet, in part or in total, some other dues such as stamp duty or legal fees.

HINTS

If you plan to remortgage or pay off a mortgage early make sure that the redemption penalties, if any, are reasonable.
Fixed rate mortgages are only fixed for a limited time. Check carefully to make sure what happens to the interest rate when the fixed period ends.
Check to see whether you are required to take out buildings and/or indemnity insurance from the lender. This can be more expensive than if you are allowed to arrange these details independantly.
Make sure you get the best deal around. Compare the APR from as many lenders as possible.
Consider taking out an insurance policy to protect youself against redundancy or illness.

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