A mortgage is kind of loan you can use to help you buy property. The average mortgage lasts for 25 years – although they can range from six months to 40 years – during which you’ll make monthly repayments. It’s secured against your home, which means you may lose your home if you can’t keep up with the repayments.
What’s a remortgage?
When you remortgage, you either take out a new loan with your existing lender or with another company. Many people remortgage because they want to get a better rate, change their interest rate type, increase or decrease their monthly payments, or free up equity (e.g. for home improvements).
How does a mortgage work?
When you buy a home you’ll typically put down a lump sum, called a ‘deposit’, towards the property’s purchase price. The remaining cost of your home can be paid for with a mortgage. You’ll own your home, but you must make monthly repayments on the mortgage to keep it.
Your regular mortgage payments will include interest, which is what the lender charges for allowing you to borrow money. The amount of interest you pay depends on the mortgage interest rate – this is a percentage of the total amount you still owe.
There are several different types of mortgages, including:
If you want to live in the property, you’ll find that most of the mortgages available to you are repayment mortgages. This means you’ll pay off a bit of the loan every month, on top of paying interest. However, if you’re getting a buy-to-let mortgage, you’ll find most of them are interest-only. This means you’ll only pay interest each month, and you’ll still owe the amount borrowed at the end of your mortgage term.
How much deposit do you need for a mortgage?
It depends on how much of a risk the lender see you as. Typically, the more of a risk you seem, the larger a deposit you’ll need to get approved for a mortgage.
When you apply for a mortgage, the company will decide how much of a risk you are by assessing your affordability and your credit history. They’ll usually look at things like:
- Information from your credit report – this helps them see if you’ve repaid credit successfully in the past
- Your income and regular expenditure – this helps them see how much you can afford to repay each month
- Your other financial commitments, such as credit cards and loans – this helps them understand how much debt you already have
Generally, companies will see you as higher risk if you have a poor credit score. You can get an idea of how companies may see you by checking your free Experian Credit Score.
The size of your deposit can also affect your mortgage interest rate and how much you pay each month – a larger deposit usually means better rates and smaller monthly payments. It’s possible to get mortgages with a 5% or 0% deposit, but they generally come with high interest rates, and you may need a guarantor to get one.
How can I improve my chances of getting a mortgage?
If you want to get a mortgage, you’ll need to prove to lenders that you’re a reliable borrower, and that you can afford the repayments.
Here are our top tips for improving your chances of acceptance:
- Be realistic about what you can afford. That five-bed house with the swimming pool may have caught your eye, but you won’t enjoy it half so much if you’re struggling to meet your mortgage payments. Review your finances, get out a calculator, and decide what you can afford – both now and in the future. Remember to take into account the possibility of rising interest rates.
- Try and improve your credit score. Your score isn’t set in stone – it changes with your financial behaviour, so you have the power to influence it. There are several steps you may be able to take to improve your score and boost your chances of getting a mortgage.
- Consider using a Help to Buy scheme. If you’re struggling to drum up enough for a decent deposit, you might want to check out the government’s Help to Buy schemes.
- Consider using a guarantor. A guarantor mortgage means that someone – usually a parent or older relative – promises to make your repayments if you can’t. This reduces risk for the lender, so they may be more likely to approve you. Make sure you understand the risks for you and the guarantor first.
Finally, remember to compare mortgages before you apply, to find the right one for your needs and circumstances. You can compare mortgages from across the UK market with Experian – it’s free and it won’t affect your credit score.
Compare mortgages with Experian