Understanding - and finding - a mortgage can be a daunting task at the best of times. Add on top the ups and downs of the property market and economy over the past year, and it can be a recipe for a headache.
A mortgage is a big financial commitment, probably the biggest one you'll ever make! So it’s important to carefully consider your options and make sure you choose the right product for you.
Here we've broken down the process into some bitesize chunks to help, and get you one step closer to that mortgage offer that'll lead you to your new home.
Step 1: Check your credit score
Mortgage lenders take a number of things into account when deciding if, and how much, they're willing to lend to you. Your credit score is often the first thing lenders will check to get an idea of how well you handle your finances.
You can read more about how lenders will use your credit score when you’re applying for a mortgage, as well as ways you can check, and improve, your current score with these helpful articles from Rightmove.
Step 2: Consider the types of mortgages available
Mortgages definitely aren't a 'one size fits all' product.
Fixed-rate mortgages will guarantee you a set interest rate for a fixed period, while tracker and Standard Variable Rate mortgages are usually linked to the Bank of England’s Base Rate, and so can vary over time. There are pros and cons to both options, so take time to consider what's on offer.
It might be worth noting that around 95% of all new mortgage loans taken out in 2022 were on a fixed rate.
Step 3: Consider your mortgage term
As well as the type of mortgage you take out, you’ll also want to consider the mortgage term; the number of years it’ll take to repay the loan. A longer mortgage term will mean lower monthly repayments, but it will also mean you’ll pay interest over a longer period.
Most lenders will offer longer terms to help spread the cost of a mortgage over 30 to 40 years, depending on your age. When you apply for a mortgage, you'll choose the term you think you can most comfortably afford.
Step 4: Work out how much you can afford
Take the time to consider all of your outgoings when working out how much you can comfortably commit to monthly mortgage repayments.
You can calculate your estimated monthly mortgage repayments using a variety of online affordability calculators, or by speaking with your Financial Adviser.
Step 5: Work out how much you could borrow
An online mortgage calculator can be a great tool to give you an idea of how much you could borrow, based on your deposit and income. Bear in mind, though, that lenders take other things into account too, while deciding how much they're willing to lend. Read more about lenders’ affordability assessments here.
Step 6: Apply for a Mortgage in Principle
Many agents and buyers will expect you to have a Mortgage in Principle when putting offers on a new home, especially during busy periods within the market. This isn’t a full mortgage offer and can change, but it’s a good indicator of how much a lender is prepared to loan to you.
Step 7: Get in touch with a mortgage broker or adviser
You are of course able to apply for a mortgage directly with a lender yourself, but you might find it helpful to use a mortgage broker or adviser for help with the process and... well, advise!
Mortgage brokers are qualified to give independent advice, so will be able to tell you which is the best deal for your particular personal circumstances. They can look at a range of mortgage products for you, and help guide you through the full mortgage application process.
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Posted on: 23 April 2023