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Thinking of getting a mortgage?

Mortgages help us buy our homes, but with so many different products available and with so many providers in the marketplace, our guide wants to take you through the different things to consider when applying for a mortgage and what you need to be mindful of.

A mortgage package is designed to take on the debt of purchasing a property and then be repaid over time. From fixed rate products (where you pay the same every month) to variable rate mortgages (where fees can go up or down based on the interest rate) choosing a package which is right for you is essential.

Everyone has heard of mortgages, they are after all one of the most common finance products in the marketplace after bank accounts and credit cards. Our guide is here to help guide you through the different things to consider when taking out a mortgage.

From things like ‘the housing ladder’ to ‘paying off your mortgage’, pop culture and financial culture has championed the mortgage for homeowners over the last 100 years.

Before mortgages, there were few options to get your foot into property ownership but now, thanks to mortgages everyone who is eligible for home ownership stands a chance of owning their own home.

Whatever package you take though, getting a mortgage goes through several stages and for 99.% of those applying, they will all face this process.

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Read through our commonly asked questions:

Before applying for a mortgage, you can use an eligibility calculator – which is one step beyond the basic mortgage calculator as the results that are presented after filling out all of the information will show you mortgages that you’re likely to be eligible for based on credit history and your personal financial details.

These are both useful tools for first time buyers and whilst it’s not 100% correct – some lenders will offer you a deal if you call them – it gives you a good indication of where you stand with purchasing your home.

Note: credit searches on the whole will impact your credit score however, soft searches as with comparison sites like ours won’t.

Whether you directly apply through a price comparison site or directly through a bank or building society, your application sits with one of the mortgage advisor teams who will assess the information given to them to see if you are eligible for a mortgage. This will then either be the acceptance or fail part of the process.

Mortgages come in two specific formats fixed rate and variable rate:

Fixed rate mortgage

These are mortgages that have a fixed rate of interest for the term of the mortgage. If you are someone that likes a stable outgoing of costs and don’t want to see bills go up and down, then a fixed rate mortgage is for you.

Variable rate mortgage

There are a few different products associated with a variable rate mortgage.

The most common is a Tracker mortgage. This has an interest rate tied into the Bank of England’s Interest rate. The price you pay is dependent upon whether or not the interest rate increases or decreases.

Discount mortgages are like the tracker mortgage only that the mortgage is tied to the standard variable rate (SVR) set by the lender and not the Bank of England.

Finally, the Standard Variable Rate mortgage is a long-term rate of interest that lenders will be charged once the fixed or introductory tracker period ends.

There are several fees that people need to consider when they are applying for a mortgage, these include;

Advice fees:  Some lenders will charge a fee if you get help from a mortgage advisor.

Booking fees: Effectively you are ‘reserving’ the loan whilst your application is being processed. If at any point you refused to go through with the house purchase, you would need to pay this bill regardless.

Arrangement fees:  This is a fee that is passed on to you by the lender for setting up the mortgage. Typical fees are around £1,000 but can go as high as £2,000. You can add this to your mortgage or pay up front. By adding it to your mortgage, you will be paying interest on this debt as well as your mortgage!

Valuation fees: Whilst there is no set price for a home valuation – with some lenders offering them for free – you need to be aware that you could be charged by the lender surveying the property you wish to purchase.

Valuations are needed to make sure that you can afford your monthly repayments.

Legal fees: Finally, there are also legal fees to take into consideration. From stamp duty to search fees. These can vary as your stamp duty is a tax paid by the buyer on the purchase price of a property and is related to the size of your mortgage.

Fundamentally, mortgages have two key components, whether they are fixed or variable. A mortgage term and deal length.

A mortgage term is for how long you hold the mortgage. For many first time mortgage holders, 25 years is the average amount of time you will own your mortgage however, you can have a shorter or longer mortgage term depending on how quickly you want to, and can pay off your debts. The shorter the term, the more you will pay monthly but you will also pay off your mortgage faster, the longer you have a mortgage, the opposite applies.

Deal length is how long your mortgage product (fixed, variable etc) is running for. For example your mortgage term may be 25 years but your deal, i.e. Fixed rate at 2.5% – may be for 3 years. Once that deal ends, you will be automatically switched to a standard variable rate by your lender if you don’t have another mortgage in place.

Early repayment charges (ERC) are another thing you need to be mindful of. If you leave your mortgage deal early you could be liable to paying a percentage of your total mortgage to the bank. I.e. if your mortgage is £90,000 and the ERC is 3% you’ll have to pay £2700 if you left your mortgage early.

When you compare mortgages, these are the very things that you need to keep in mind when calculating if the mortgage deal you are going for.

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