What's a Mortgage?
A mortgage is a loan provided by a bank, building society or specialist mortgage company that you take out to buy a property. If you change your mortgage provider but don’t move house, this is known as remortgaging.
How it Works
A mortgage is paid back in instalments. The term of a mortgage is typically 25 years.
If you’re looking at getting a mortgage it’s important to only borrow what you can afford because mortgages are secured against your property. This means that if you can’t make your repayments the lender can sell the property to recover the money they lent you.
Paying off a Mortgage
You can get a mortgage on a repayment or an interest-only basis or a combination of both.
With a repayment mortgage your monthly payments consist of the interest and the capital, which is a part of the original loan. As you’re actually paying the loan back over your mortgage term, you should be mortgage-free at the end of it (as long as you keep up your payments).
With an interest-only mortgage you’re not actually paying back the loan. Instead your monthly payments cover the interest and that’s all. At the end of the mortgage term you’ll still need to repay the amount you originally borrowed so you’ll need to consider how you’ll do this. Interest-only mortgage payments can be lower than repayment mortgages but you might have to have a bigger deposit.
With a combination of both repayment and interest-only, a portion of your loan is paid on a repayment basis and the remainder on an interest-only basis. At the end of the term, and as long as you’ve kept up your repayments you’ll just have to pay off the interest-only part of your loan.
Working Out How Much You Can Afford
We offer mortgages of up to 90% of the value of your property but it’s important to figure out your finances and see what you can really afford. Our Repayment and Affordability calculators can help with this.
When you take out a mortgage you need to let us know how much you earn and what outgoings and ongoing financial commitments you have. This will allow us to determine how much you can borrow. You will also need to put down a deposit that will have an effect on the rate you may be eligible for.
The amount you borrow is always expressed as a percentage of the value of the property – loan to value. So for example, if you’ve got a $20,000 deposit and you want a mortgage of $80,000 on a purchase price of $100,000 your loan to value would be 80%. You’ll notice that the bigger your deposit is the lower your LTV will be. You’ll also get a better mortgage rate.
There are number of different mortgage types, we’ll cover them off briefly here.
Fixed Rate: you’ll pay a fixed rate of interest for a set period. This means you’ll always know what your repayments will be each month so you can budget accordingly. See our Fixed Rate mortgages
Standard Variable Rate: also known as SVR. Your payments go up or down in line with the lender’s standard interest rate The rate can go up or down at any time, by any amount.
Discount: you pay a lower rate of interest to start with and after a set period of time you’ll move to higher rate.
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