First Charge Mortgages
Taking out a first charge mortgage is a big step. This information is designed to outline how to get a mortgage, the range of mortgages available and the differences between them.
What is a first charge mortgage?
A first charge mortgage (often known just as a mortgage) is a loan that is taken out to purchase a property or land. A mortgage is often taken out over a long time period, such as 25 years. There are different types of mortgages that each have their advantages and disadvantages.
How to get a first charge mortgage
If you are looking for a mortgage, whether you are a first-time buyer or moving home, the process can be complex. The best option is to find a broker or lender who can guide you through the process step by step, such as Freedom Mortgages. https://mortgages.freedomfinance.co.uk
If you are looking to obtain a mortgage, the first step is to check your credit score is strong, as your credit score will impact whether you will be accepted for a mortgage and the rate you will be offered. To find out how to improve your credit score, visit: https://www.freedomfinance.co.uk/guides/tips-to-improve-your-credit-rating/.
Unlike an unsecured loan, a mortgage advisor will also check your affordability in detail. They will work out your income, including any additional income such as benefits, and deduct your outgoings, which includes bills, living costs and any current debts. This is to ensure that you can afford to make the repayments.
The mortgage advisor will also ask you for documentation to evidence your income and identity. This includes; utility bills, payslips, passport/ driving licence. If you are self-employed, you will need additional information such as your accounts from the past three years. This will then determine how much you are eligible to borrow.
They will also ask further questions to determine which mortgage product will best suit your individual needs and circumstances. A mortgage advisor will then be able to advise the best mortgage product to suit you.
The lender will also carry out a valuation on the property you are purchasing to make sure that it is suitable for a mortgage. Once this valuation has been carried out and the lender has all the information they need, the lender will make you an official offer. Once all final checks have been made by your solicitor, if you are happy with the offer, you can then accept the offer and complete your mortgage.
As the name suggests, a repayment mortgage involves repaying both the capital (money borrowed) and the interest charged on the outstanding amount. This amount is typically more than the interest only alternative, but at the end of the repayment mortgage period, the debt will be fully repaid so there is no need to invest elsewhere.
Interest only mortgage
The monthly payments to an interest only mortgage covers only the interest and none of the capital. This means that the amount borrowed does not reduce. Because of this, money will need to be found elsewhere so that the mortgage can be repaid at the end of the mortgage term, for example, via investments. Although the monthly repayments are less than a repayment mortgage, the risk is higher as there is no guarantee that you will have sufficient capital to repay in full at the end of the term.
Pension plan mortgage
An investment mortgage is also tax efficient, but not flexible. The interest is paid to the lender each month and the loan itself is repaid at the end of the term from the tax-free lump sum that the pension provides on retirement. Because you cannot access your pension until you are 55, this type of mortgage cannot be repaid until then. Again there are no guarantees that the lump sum will be enough to cover the full amount of the loan at the end of the term.
Buy to let mortgage
This is a mortgage usually taken on a second property that you intend to rent out. The repayment method used for a buy to let mortgage can be either repayment or interest only. Lenders use the expected rental income and amount of deposit paid to calculate how much you can borrow.
If you are unsure of your options it is always a good idea to seek financial advice.