At Gateway Financial Consulting we understand that buying a property can be a stressful experience, and we aim to make sure that arranging your finance is as smooth a process as possible.
We will discuss in detail with you your preferences and specific needs to ensure we find the most appropriate mortgage for you. We will talk you through the whole process from beginning to end, and offer you advice along the way.
Not only do we arrange your mortgage, we can also arrange any necessary insurances to ensure your mortgage and home are adequately protected. We aim to offer you an end to end process providing for all your needs in one place.
Types of mortgage
You can choose to pay your mortgage back in the following ways:
- repayment;
- interest-only; or
- a combination of the two.
You'll need to decide which is best for you.
Repayment mortgages
Every month, your payments to the lender go towards reducing the amount you owe as well as paying the interest they charge. So each month you're paying off a small part of your mortgage.
The pros: It's a simple, clear approach - you can see your loan getting smaller.
The cons: In the early years your payments will be mainly interest, so if you want to repay the mortgage or move house in the early years, you'll find that the amount you owe won't have gone down by very much.
Interest-only mortgages
As the name suggests, your monthly payment only pays the interest charges on your loan - you're not actually reducing the loan itself. This is why it's very important you arrange some other way to repay the loan at the end of the term; for example, through an investment or savings plan.
If you choose this option you will need to check that your investment or savings plan grows accordingly, so that at the end of the term you'll have enough money to pay off the loan. If it doesn't grow as planned, you will have a shortfall and you'll need to think about ways of making this up.
The pros: Because you're only paying off the interest, and not the loan itself, your monthly payments will be lower.
The cons: That debt is not going to go away. Throughout the life of the mortgage, you'll need to check your investment or savings plan is on track to repay your loan at the end of the term. If you can't repay it at the end of the term you could lose your home.
So, choosing a repayment or interest-only mortgage is one decision. The other will be to choose the interest-rate deal.
How much can you borrow?
Lenders should lend responsibly. This means that they should consider whether you can keep up the mortgage repayments now and throughout the term of the mortgage; for example after an initial discount period ends. They should base this on things like your income, expenditure and other circumstances.
Mortgage lenders have traditionally offered to lend up to four-and-a-half times your salary (before tax).
If you’re buying as a couple they would normally include the smaller earner’s salary x 1.
Alternatively, many lenders have offered a couple’s total salary x 3.
Lenders may take into account:
- If you have other money coming in, such as bonuses, overtime or commission. However, since it isn’t guaranteed income, lenders may only take into account half of this money.
- If you already have lots of expenses, such as other loan payments, they will offer you less.
Recently it has become more common for lenders to make an affordability assessment when calculating how much they are prepared to lend you. Each lender will have its own method, but generally they will all try to calculate your disposable income, taking account of:
- your total income;
- any credit commitment such as loans and credit cards; and
- household bills and living expenses.
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