What are Mortgage Loans?






When you purchase a house you will probably need to take out a mortgage to enable you to afford it. These types of UK loans are slightly different to personal and car loans and can sometimes be tricky to get, however, if you have a good employment and credit history you will get a more favourable mortgage, and may even be able to qualify for close to a full mortgage. If you are a first time buyer, it is also easier to get a mortgage. This is the biggest financial commitment you will probably make in your life, so it is wise to take some time and compare various mortgage lenders to find the one that is the best for you and that is the most affordable. Initial interest rates start from 1.7% and can go up to 5%, with the APR ranging from 2.4% up to 5.7%. The max LTV you can borrow is between 60% and 90% on most of the cheaper mortgages.

When you start out, the first thing you should do before you even start looking for a mortgage is to work out how much you need and how much you can afford to repay each month. You should work out the Loan to Value rate (LTV) which is the percentage of the property value that you will need to borrow. Next, you will need to decide whether you want to choose an interest only mortgage or a repayment mortgage. The interest mortgage is cheaper, as you are only paying off the interest each month, however, you are then left with the full amount of the loan that you have to pay off, which some people do using a separate savings account and an investment. The repayment mortgage is probably the safest, as you are paying off the loan and actually reducing its amount whilst also paying the interest.

Aside from these, there are also three main mortgage loan types that you will need to choose from, namely the Fixed Rate Mortgage, a Tracker Mortgage or a Discount Mortgage. Each type offers its own conditions and interest rates and will depend on your specific needs and circumstances.

Fixed Rate Mortgage: This offers fixed repayments from 3 to 5 years meaning that your interest rate does not change even if the Bank of England’s base rate changes during this time. However, because you are paying for the stability that this loan offers in set repayments, the interest rate tends to be slightly higher.

Tracker Mortgage: This is a variable rate mortgage loan, which mean that the repayment amount will fluctuate based on the Bank of England base rate. This usually starts out cheaper, but is unpredictable and difficult to budget around.

Discount Mortgage: This is also a variable rate loan, but instead of working off the Bank of England, the loan amount will be calculated according to the Standard Variable Rate of your mortgage provider. This often makes them the cheapest mortgages to start off with, however, they are also unpredictable and somewhat riskier than even the Tracker Mortgage, because your lender is under no obligation to reduce the loan rates when the market falls, but you can be sure that they will increase the interest when the rates climb.

The top UK loan mortgage providers include HSBC, Chelsea Building Society, Santander, Post Office, Yorkshire Building Society, Loan.Me, and Principality Building.