Buying your own home is a huge financial commitment. Costs are high and getting higher and borrowing the money you need with a mortgage is an essential for virtually everyone.
A mortgage is of course simply a very large loan, secured on the property you are buying. But a great deal of misunderstanding and more than a few myths have grown up about mortgage over the years.
At Continuum, as mortgage experts, we are looking at some of these myths and doing our best to clear them up.
Myth 1 You always need a huge deposit
You need to put down a deposit when you buy a property. This is a proportion of the purchase price. Lenders like to see that you have made a financial commitment of your own money before they will risk their own.
But how much deposit do you need? Many first-time buyers believe they need to put down a substantial deposit to secure their home.
However, many lenders will look at 5% deposits. That £250,000 property could be yours with just £12,500 of your own cash.
Of course, a larger deposit can be better, as you will have paid for a larger percentage of your home. You would need to borrow less and it could mean a lower interest rate – but no large deposit does not equal no home.
Have mortgage questions?
Myth 2 you must have perfect credit score
Lenders will always be keenest to lend when they are confident of getting repaid. So they will always look at an applicant’s credit score, how you have used credit and how you have repaid in the past.
If you have a perfect record of repaying every credit card and bill on time, it could help you get a better mortgage deal, but a less than perfect credit score or credit history doesn’t prevent you from getting a mortgage. Your basic numerical credit score is only one of the factors lenders look at. Having had some financial problems in the past is no barrier to having a better financial future, especially if you get some help from a specialist like Continuum to smooth the way.
You may have to pay a little more for your mortgage but there are lenders who can help even when your record is really poor.
Myth 3 You are committed to the lender for life
A mortgage is a long-term commitment, but you don’t need to stay with the same lender for the next 25 or 35 years (however long your mortgage term may be). If you can get a better deal from another lender a few years down the line it is perfectly easy to change – by remortgaging. This allows you to arrange a new mortgage on your property without moving, pay off the existing lender, and carry on with the new mortgage provider, you may have to pay an early repayment charge to your existing lender when you remortgage.
You may be able to take advantage of better rates, or the fact that you have paid off some of your loan to reduce your outgoings each month, or possibly own your home sooner than you originally thought.
Want to change mortgage lenders?
You can always talk to us at Continuum about remortgaging
Myth 4 All mortgages work the same way
Its true that all mortgages are similar in that they are all large loans secured on your property – which simply means that if you don’t keep up repayments, the lender can seize the home and sell it.
But they differ in details. There are different types of mortgages – including fixed rates, tracker mortgages and standard variable rate mortgages. A fixed-rate deal means your monthly payments stay the same until an agreed date, while a tracker mortgage rises and falls in line with the Bank of England base rate. A standard variable rate mortgage is what you’ll be transferred onto when your current deal comes to an end – and should be a cue to shop around for better deal.
There are interest-only deals where you only pay the interest during the mortgage term and then repay the full amount you borrowed when it matures.
Understanding the most appropriate mortgage for you may require the help of an expert – at Continuum we will be happy to help find the one that is suitable for you and your particular circumstances.
Myth 5 All lenders give you the same deal
Advertised mortgage deals may look very similar but in fact all lenders have different requirements and will make you different offers.
Interest rates are only part of the story. There can be a wide range of other charges to consider. Not only does getting the most appropriate deal for you mean shopping around, it can mean getting expert help to understand the jargon and the real implications.
At Continuum we will search the entire market to find the mortgage product that really is right for you. Not only can we compare all the offers from the major lenders and from specialists, we have access to products that are never advertised and are only available to advisors
Don’t fall for mortgage myths. To get the expert help you need please call us on 0345 643 0770, email us at [email protected] or click on the ‘Contact Us’ link below.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.