Mortgages explained

Mortgages can be confusing. With so many different options you need to make sure you are getting a deal that suits your needs. Whether you are a first time buyer, or moving home, here is a guide that explains some of the key things you need to consider.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

• repayment mortgage – Also known as a Capital and Interest mortgage, your monthly mortgage payment covers the interest on the loan and a portion of the capital. You gradually pay off the amount you borrowed, as well as the interest, over the life of the mortgage.
• interest only mortgage – The payments you make each month only cover the interest on the loan. You will still owe the amount borrowed (‘the capital’) at the end of the mortgage. It is your responsibility to make sure you have suitable plans in place to repay the capital. Click here to see the repayment vehicles we accept.
  We allow a maximum of 75% of the purchase price or valuation (whichever is lower) on an interest only basis or combination of repayment and interest only. If your loan exceeds 75% loan to value then the entire amount must be on a repayment basis.
• part repayment/part interest only mortgage – this is where a portion of the loan is on a repayment basis and the remainder is on an interest only basis. Our interest only rules apply to the interest only element of the loan (see above for details).

Fixed rate mortgages – the interest rate of the mortgage remains the same for a set period – typically 2 to 5 years. This means you know exactly where you stand and what you need to budget for during the fixed rate period only. This then changes to a variable rate at the end of the fixed rate period.

Standard Variable Rate – This is the rate that many lenders charge at the end of the promotional rate period. It is a rate lenders set in accordance with their mortgage conditions.

Tracker mortgages – your monthly payment will vary as it tracks the Bank of England Base Rate normally by a set percentage. If the base rate goes up then so does the amount of interest you pay which means your monthly payments will rise. But, if the base rate goes down then the interest you pay will fall and so will your monthly payments.

View our full range and rates

Some mortgages have an arrangement fee. Make sure you take this into account when you are choosing your mortgage.

There are always extra costs to consider so make sure you budget for them. These include:

• stamp duty
• valuation fees
• Solicitors fees

If you are selling a home there will be a Energy Performance Certificate (EPC) required too.

Read the small print. Make sure you know what happens if you want to move house or change your mortgage deal. Are there Early Repayment Charges (ERCs)? Can you make overpayments or take payment holidays?

Choose your mortgage term wisely. You can take a shorter term so that your mortgage is paid off quicker, but make sure that you can afford the monthly repayments (and any repayment vehicle for interest only mortgages is on track to repay earlier too).

Think about the Loan to Value (LTV) you need. Can you afford to put down a bigger deposit and borrow less money? This may mean you may be able to get a better rate and may pay less interest.

Make sure you ask about Higher lending Charges (HLC). Some deals carry them and can increase the amount you have to pay.