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Choosing a mortgage

With such a wide range of different mortgages on offer, it can be hard to know where to start. This page has advice on how to go about finding the right mortgage for you.

When you're talking to mortgage advisers and lenders about your choices, make sure you understand what they're telling you. If anything seems unclear, ask them to explain again. A mortgage is a huge financial commitment, so it's important that you understand what you're getting into before you make a decision.

Decide how much you need to borrow

Before you start looking at mortgages, you need to work out how much you can afford to borrow for your mortgage.

Decide how you want to repay the loan

Most lenders offer two mortgage repayment options:

  • a repayment mortgage, or
  • an interest only mortgage.

If you take out a repayment mortgage, you borrow the money to buy your home from the lender and then repay the interest and the capital in monthly instalments.

If you take out an interest only mortgage, you borrow the money to buy your home from the lender and then repay them the interest, but not the capital. You then pay money into a separate savings plan, so that when your mortgage term comes to an end, you should have saved enough to pay off the capital.

Decide how long you need to repay the loan

Most mortgages have a 25 year term, so you have 25 years to pay back the debt. However, you can get mortgages with a shorter term. These mortgages have higher monthly payments, but cost less in the long run because you won't pay your mortgage provider as much interest when compared with a mortgage taken out over a longer period of time.

If you can afford larger payments, or if you're nearing retirement, it could be better to pay off your mortgage over a shorter period, in order to reduce the total cost or to ensure your mortgage is paid off before you stop work.

It may also be possible to get a mortgage over a longer term than 25 years. Your monthly repayments will be smaller, however you will pay more back in interest over the years.

Start shopping around

There are many different lenders and types of mortgage. It's worth shopping around and checking what's on offer from:

  • lenders such as banks or building societies
  • mortgage intermediaries or brokers (such as a financial adviser or an estate agent) who arrange deals with lenders
  • the builder or property developer, if it's a newly-built house.

Many companies now sell mortgages direct, over the telephone or the internet. This may seem time saving, but you may not get much advice about whether what is offered is suitable for your needs.

It's best to contact several different sources and make comparisons. The internet can be a good place to compare mortgages - many lender and intermediary websites have calculators to help you work out how much a mortgage would cost.

Check out the following websites to compare different mortgages:

Below are some things to think about when you're looking at different mortgages.

Check whether you're getting information or advice

When you contact a lender or mortgage broker, they must tell you if they sell mortgages on an information only or advice basis. Information only sales are suitable if you definitely know which kind of mortgage you want. You will just receive information about the mortgage that you have asked about.

If you are being offered an advice based sale, the lender or mortgage broker must ensure that you are offered a mortgage that is suitable for your needs. The adviser must have undergone specialist training and has to consider if you will be able to afford the mortgage repayments.

Check how interest is calculated

Different mortgages have different ways of calculating interest on your mortgage. This can make a difference to how much your monthly repayments will be and whether or not they will change in the future.

Check for penalties

If you want to switch your mortgage to a better deal or pay your loan off early, you may have to pay a redemption charge. Cheap-rate mortgages which look good value often have penalty clauses like this, which could mean paying back all the savings you received from a special deal. Check how long you would be locked into a deal before you could switch without paying a penalty.

Check whether the mortgage meets CAT standards

Many mortgages are described as CAT standard (CAT is short for Charges, Access and Terms). Non-CAT mortgages are not necessarily worse, but the government CAT standard should mean a reasonable-value mortgage with no hidden charges or terms.

Only take risks you are happy with

Consider your repayment options carefully. Interest only loans depend on an investment plan such as an endowment policy or Individual Savings Account (ISA) to pay off the capital sum you borrowed, and the income from this may not be guaranteed. Some people who took out endowment mortgage plans in the past are now finding they have a endowment mortgage shortfall and are having to make extra top-up payments to cover the loan.

A repayment mortgage is less risky because, provided you keep up the repayments, your mortgage will always be paid off by the end of the term.

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The important points

  • Work out how much you can afford to borrow for your mortgage.
  • Most mortgage lenders offer two options for paying the mortgage back - repayment and interest-only.
  • Check if what you're getting is advice or information when you contact a lender or mortgage broker.
  • Make sure you understand how the interest is calculated and what conditions are attached, for example penalties if you switch to another lender.

If you're still looking for help, try searching, or find out how to contact us

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