Starting out: Understanding Mortgages Checklist

Welcome to your journey towards becoming a mortgage and home-buying superstar! Whether you're dreaming of owning your first home or just want to understand the process better, having a checklist can make everything simpler and less overwhelming. This chapter will provide you with a concise, easy-to-follow checklist to get you started.

 

1. Mortgage Types – What’s Your Flavour?

Explore the different types of mortgages available:

Fixed-Rate Mortgages: Lock your interest rate for a set period. 2 and 5-year fixed rates tend to be the most popular, however, increasingly 10-year and full-term fixed rates are becoming available. After the initial fixed term, your rate would move onto a variable rate so always check to see when these expire and what options are out there.

Variable Rate Mortgages: The rate can change, based on the lender's rate which may or may not be linked to the Bank of England’s base rate. Rates can go up and down, if you think rates are likely to come down then they can be a good idea however they can go up and you end up having to pay more each month so make sure you can afford it!

Tracker Mortgages: Directly follow the Bank of England’s rate, plus a bit extra. Tracker rates are a variation on variable rates where they explicitly follow the Bank of England’s base rate, again as per variable mortgages the rates can go up and down.

Interest-Only Mortgages: You only pay the interest each month. The main loan amount stays the same. It’s like the minimum payment on your credit card. Interest-only mortgages tend to be more common on properties that are being let out as opposed to owner-occupied. You would still owe the original capital back to the lender at the end of the mortgage term, or potentially have to sell your house.

2. First-Time Buyer Specials:

Check out deals specifically for first-time buyers, such as reduced fees or lower deposit requirements. Sometimes it pays to be new!

3. How Much Can You Borrow?

The Klink app will give you a good indication under your home goal as to how large a mortgage you will be able to obtain. Speaking directly to a lender or obtaining an agreement in principle can give you definitive answer.

 

4. The Importance of a Good Credit Score:

Make sure your credit history is as tidy as your Sunday best. A good credit score can mean better mortgage terms and a larger choice of mortgage lenders. Check your score for free online – no excuses! However, for those with a less than perfect credit score, there are still plenty of options.

 

5. The Nitty-Gritty of LTV (Loan to Value Ratio):

Understand how much of the property’s value your mortgage could cover. Lower LTV usually means lower interest rates. It’s all about less risk for the lender! For example, an £80,000 mortgage on a property worth £130,000 (60% LTV) is likely to have a lower interest rate than an £80,000 mortgage on a property worth £100,000 (80% LTV).

 

6. Stamp Duty – Don’t Forget the Taxman:

Calculate potential stamp duty costs. This tax applies if the property is over a certain value. Yes, even buying a home has its tax. Make sure your available funds covers both your deposit and all the associated costs!

 

7. Get Professional Help – It’s Okay to Ask:

Consider speaking to a mortgage broker. They can help you navigate through the options and might even snag you a better deal. Think of them as your financial GPS. Klink recommends when the time is right to speak to a mortgage broker, there are a wide variety of brokers available, some free some charge fees best to do your research.

 

8. Agreement in Principle (AIP):

Before you start home hunting in earnest, get an AIP. It shows sellers you’re a serious buyer and gives you a better idea of what you can afford. You can get these either direct from a mortgage lender or via a broker. It will state that the lender in principle is willing to provide you a mortgage up to a specific amount.

 

Remember, understanding your mortgage options is the first big step towards making an informed decision about buying a home. With the right knowledge, you’ll be ready to take on the property ladder with confidence. So go on, get clued up and start your journey to homeownership!