What are mortgages and how do they work? We’ll explain all that and more here.
What’s a mortgage?
A mortgage is a loan provided by a bank, building society or specialist mortgage company that you take out to buy a property. If you change your mortgage provider but don’t move house, this is known as remortgaging. All our mortgages are tailor-made for us and brought to you by Bank of Ireland UK.
Post Office® Mortgages are provided by Bank of Ireland UK.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
How it works
A mortgage is paid back in instalments. The term of a mortgage is typically 25 years.
If you’re looking at getting a mortgage it’s important to only borrow what you can afford because mortgages are secured against your property. This means that if you can’t make your repayments the lender can sell the property to recover the money they lent you.
Paying off your mortgage
You can get a mortgage on a repayment or an interest-only basis or a combination of both.
With a repayment mortgage your monthly payments consist of the interest and the capital, which is a part of the original loan. As you’re actually paying the loan back over your mortgage term, you should be mortgage-free at the end of it (as long as you keep up your payments).
With an interest-only mortgage you’re not actually paying back the loan. Instead your monthly payments cover the interest and that’s all. At the end of the mortgage term you’ll still need to repay the amount you originally borrowed so you’ll need to consider how you’ll do this. Interest-only mortgage payments can be lower than repayment mortgages but you might have to have a bigger deposit.
With a combination of both repayment and interest-only, a portion of your loan is paid on a repayment basis and the remainder on an interest-only basis. At the end of the term, and as long as you’ve kept up your repayments you’ll just have to pay off the interest-only part of your loan.
If you take one of our mortgages, a maximum of 60% of the purchase price or valuation (whichever is lower) can be on an interest only basis, or a combination of repayment and interest only, with a suitable repayment strategy. If your loan exceeds 60% Loan to Value (LTVThis stands for Loan to Value. It’s the amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower. For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. If the valuation of the property is lower than the price you've agreed, the LTV will be based on the valuation.) then the entire amount must be on a repayment basis.
Working out how much you can afford
We offer mortgages of up to 90% of the value of your property but it’s important to figure out your finances and see what you can really afford. Our Repayment and Affordability calculators can help with this. Post Office Mortgages® are provided by Bank of Ireland UK.
When you take out a mortgage you need to let us know how much you earn and what outgoings and ongoing financial commitments you have. This will allow us to determine how much you can borrow. You will also need to put down a deposit which will have an effect on the rate you may be eligible for.
The amount you borrow is always expressed as a percentage of the value of the property – loan to value (LTVThis stands for Loan to Value. It’s the amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower. For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. If the valuation of the property is lower than the price you've agreed, the LTV will be based on the valuation.). So for example, if you’ve got a £20,000 deposit and you want a mortgage of £80,000 on a purchase price of £100,000 your loan to value (LTVThis stands for Loan to Value. It’s the amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower. For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. If the valuation of the property is lower than the price you've agreed, the LTV will be based on the valuation.) would be 80%. You’ll notice that the bigger your deposit is the lower your LTVThis stands for Loan to Value. It’s the amount of mortgage expressed as a percentage of the value of the property or purchase price, whichever is lower. For example, a mortgage of £80,000 on a purchase price of £100,000 would be 80% LTV. If the valuation of the property is lower than the price you've agreed, the LTV will be based on the valuation. will be. You’ll also get a better mortgage rate.
Mortgage types
There are number of different mortgage types, we’ll cover them off briefly here.
Fixed Rate: you’ll pay a fixed rate of interest for a set period. This means you’ll always know what your repayments will be each month so you can budget accordingly. See our Fixed Rate mortgages
Tracker: your interest rate will follow the Bank of England Base Rate, or another base rate. As these base rates go up and down, your mortgage rate and your repayment amounts will also go up and down. See our Tracker mortgages
Standard VariableA variable rate of interest can go up or down throughout the lifetime of a savings account. Rate: also known as SVR. Your payments go up or down in line with the lender’s standard interest rate instead of the Bank of England Base Rate. The rate can go up or down at any time, by any amount. Post Office are different to most providers in that at the end of an initial Tracker or Fixed Rate period, all of our mortgages revert to a Tracker style rate for the remainder of the term, and only move in line with the Bank of England Base Rate.
Discount: you pay a lower rate of interest to start with and after a set period of time you’ll move to higher rate.
Offset: The amount of interest you pay is calculated by deducting the amount in your current or savings account from your loan amount. If you’ve got more money in your current or savings account, the amount of interest you’ll pay (and your repayments) will go down. It also works the other way round too.
