Shropshire Mortgages Introduction
What is a mortgage?
A mortgage is a loan taken out with a mortgage lender which is paid back over a time period with interest. Mortgages are often secured on your home, meaning your home could be repossessed if you do not keep up with mortgage payments.
How much can be borrowed?
Different mortgage lenders will have different ways of assessing how much you can borrow. However many lenders use the following rules or similar:
- 3.5x pre-tax annual income if you are single
- 3.5x pre-tax annual income plus the annual income of your partner if married
You and your mortgage lender should also take into account repayments from any other loans you may have (including credit cards), household bills and living expenses.
How much can you afford to borrow?
What a mortgage lender is willing to offer and what you may be able to afford may differ. It is recommended that you use a budget calculator to calculate how much you can afford to borrow.
How long will a mortgage last?
Traditionally, mortgages are arranged over a term of 25 years and you agree to repay the loan by or at the end of the term. Shorter or longer mortgage terms can be arranged with your mortgage lender - it all depends on how much you can afford and how quickly you want to finish the mortgage. When considering how long you want your mortgage to run, you should bear in mind a number of points:
- Most mortgages are supported by earned income. You should think about how your income may change in the future and arrange your mortgage term appropriately
- With a repayment mortgage, the longer the term, the lower your monthly payments will be but the more interest you will pay in total, and vice-versa: the shorter the term, the higher the monthly payments, but the less interest you pay in total
- If you take out an interest only mortgage and are relying on the returns of an investment plan to repay the loan, you should ensure that the terms of both the mortgage and the investment are sufficient to allow the investment to build up adequate funds to repay the loan at the end of it’s term
- Whatever the term of your mortgage, since interest is paid on the amount of the capital balance, less interest is paid in total on a repayment loan (where the capital reduces) compared with an interest only loan (where the capital balance stays the same)