Which type of mortgage is right for me?
So you want to buy a property? Then you’ll probably need some sort of mortgage. But which sort? An independent mortgage adviser can help you work out the most suitable type for you, and – even more importantly – help you get it.
Most mortgages are used to buy homes, but other kinds enable you to buy property to let, or business premises such as offices or shops. The right mortgage for you will depend both on your circumstances and what you’re hoping to do.
I’m buying a home
A mortgage used to buy a home is a residential mortgage. These are available in three types: repayment, interest-only and combined rates.
- Repayment mortgage – Your monthly payments will pay back the whole loan, including interest, over the mortgage term (usually 25 years). This means that when the mortgage term is over, the borrowed money is completely repaid.
- Interest-only – Your monthly payments will pay only the interest on the loan (so will be smaller than with a repayment mortgage). However, at the end of the mortgage term you will have to pay back the original amount you borrowed. You might do this by using other savings or investments, or by selling the property.
- Combined rates – Your mortgage may be a mixture of repayment and interest-only, so that a portion of the loan is paid off by the end of the mortgage term.
I want to build my own home
Rather than buy an existing home, you may be able to buy a plot of land, secure planning permission and manage the building of your own home. This can work out more affordable for some people, and is a way to get your home exactly as you want it – though of course it is a major project.
For this you can take out a self-build mortgage. This loan covers the cost of the plot of land and the amount you need to build the property, including the materials and labour. It’s different from a normal residential mortgage in that you receive the money in instalments rather than one sum, so that the lender can make sure you’re spending it on the building project and not on anything else.
I’m buying to let
If you want to buy a property to rent out to tenants, you’ll need a buy-to-let mortgage. This type of mortgage is more risky for a lender, so your mortgage deal will probably require you to pay a higher interest rate. This type of mortgage generally requires a larger deposit as well.
Most buy-to-let mortgages are interest-only, though repayment mortgages are also available for this.
I’m buying business premises
If you want to buy business premises, such as a shop, you’ll need a commercial mortgage. Again, this kind of mortgage carries higher risk for a lender, so this can affect both the deal you are offered and the amount you are able to borrow. Generally you can’t borrow as much as you can with a residential mortgage.
Commercial mortgages are available as both interest-only and repayment. Talk to your mortgage adviser and/or your accountant about which kind will be best for your business.
How much can I borrow?
For any kind of mortgage, the amount you can borrow is based on a number of variables. These include your income, your other expenditure, the source of your income (e.g. how reliable is it?), how much money you can put down as deposit, the value of the property itself, and other factors.
How much interest will I have to pay?
The amount of interest you’ll have to pay on the money you borrow will depend on your mortgage deal.
Why should I use a mortgage adviser?
The advantage of an independent mortgage adviser is that they can give you unbiased advice that covers the whole of the mortgage market. They work for you, putting your interests first, so unlike a provider they will not try to push you into any particular deal. They can also give you invaluable advice on which type of mortgage is right for your situation and how much you can realistically afford. Most importantly, they can help you make the strongest possible mortgage application, maximising your chances of getting the deal you want.
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