Mortgage Basics 3

As you shop for your perfect mortgage, there are just a few more mortgage basics that you should know. Remember, the more informed you are about mortgage basics before you begin the process, the easier it will be from start to finish.

Mortgage Basics Part 5 – Proving Income

Lenders want to know how much money you make before they will approve a loan for your home purchase. Remember, you will typically be able to borrow around three times the amount you make each year. However, lenders would rather have some proof of your income instead of just taking your word for it.

If you are employed by someone, proving your income is easy. You will simply present your pay slips or your P60 form. However, many borrowers do not have confirmable income. Those who are paid with commissions or are self-employed, for example, may need to have additional income proofs. Three years of audited accounts are usually sufficient. Some lenders will offer self-certification mortgages, which allow you to simply state your income without written proof.

Mortgage Basics Part 6 – Understanding Your Interest Rate

Interest rates are sometimes tricky to understand. Interest rates contribute to most of the cost of your loan, so understanding how they work is essential to getting a good deal. One of the best ways to decide the type of interest structure to use is to watch rate trends. Most lenders set a standard variable rate that is 2% higher than the Bank of England’s base lending rate. Fixed rate mortgages are slightly higher than this.

When interest rates appear to be increasing, a fixed rate mortgage will help you lock in a good rate while they are still low. On the other hand, when rates appear to be dropping, a variable rate mortgage will allow you to take advantage of these continued drops. However, there is always a chance with a variable rate mortgage that the market could change and rates could increase.

Mortgage Basics Part 7 – Understanding Your Mortgage Term

Traditional UK mortgages are 25 years. However, you can choose just about any length of mortgage term when you get your loan. Most lenders will offer loans between 15 and 40 years in length.

The longer your loan, the lower your monthly payments will be. However, if you choose a long loan, you will pay more in interest over the life of your mortgage. The best strategy to save money in the long term is to get a loan with the shortest possible term that still gives you monthly payments that you can afford.