If you are considering buying your first home the chances are you will be thinking of applying for a mortgage to get your foot on the property ladder. In this handy guide, we break down all there is to know about mortgages for first time buyers.
What is a Mortgage?
A mortgage is finance taken out in the form of a loan which is a long-term option to buying a home. Monthly payments will be taken, much like paying rent except when the loan term is finished, usually over a period of 15+ years (depending on your age and financial status), you will own the home at the end of the term. As a side note, it is extremely important that you keep up with the repayments on your mortgage loan as you risk losing your home if you default.
What are the Different Types of Mortgages?
There are many different types of mortgage available, so we have included the most common ones here for you;
First Time Buyer
First time buyer mortgages are tied in with special offers, discounts and lower rates from lenders to help you get on the property ladder for the first time.
Fixed Rate
A fixed rate mortgage is exactly what it says it is. This type of mortgage is popular with first time buyers and means that the mortgage repayments will be fixed at a particular rate for a specific period of time.
Variable
A variable rate mortgage can change periodically depending on the interest rates and when they may fluctuate. The lenders base rate of the mortgage will remain the same but the interest applied will vary from month to month.
What are Interest Rates and How Much of a Deposit Will You Need?
Mortgage interest rates are how much you pay back the lender on top of the amount you have borrowed. For a simple example, if you borrow £100 with a 5% interest rate, you will pay back £105. The excess amount is the interest earned by the bank or building society for lending you the money. It is wise to do your homework as there are many lenders with many different rates to choose from.
The deposit you will need will be based on many factors, including the price of the house you want to buy and what you can afford to pay back every month. Some lenders offer very low deposit terms including 5% deposits for first time buyers. It is worth noting that a mortgage with a 20% deposit will get you lower interest rates than one with a 10% deposit. You need to shop around and see which lender fits your situation the best.
If you would like any mortgage advice, please do not hesitate to contact us as we have in-house mortgage advisors that would be happy to help! Get in touch with us here.
It is in your interest to speak to an advisor when thinking about a mortgage to get advice on all of the different types of mortgage as well as what will suit your needs and the amount of funds you have available.
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