Finding the right mortgage for you can seem like a bit of a minefield. There are a lot of different companies offering a huge variety of mortgages and it can seem like an insurmountable task to make sure you get the best (and right!) offer for you.
Firstly, it is important to point out that a mortgage is a loan. You borrow money from a lender, who charge interest on the amount that you borrow. The difference is that a mortgage is secured against your home. Therefore, if you cannot keep up with repayments on your mortgage the lender is entitled to sell your home to recoup costs.
There are three main types of mortgage. Interest only, repayment or a combination of both. There are pros and cons to each mortgage and it is something that you must decide, together with your adviser, about which is the best option for you. The main advantage of the repayment type of mortgage is that every month the money you pay back goes towards the lump sum of your home as well as the interest charged by the lender. Therefore, every month you can see your loan reducing. The one con with type of mortgage really occurs during the early part of the life of the loan when you will find that the amount that you pay back is reducing the interest more than the lump sum of the loan. An interest-only mortgage is exactly what it says on the tin! Every month the amount that you pay back is only paying the interest on your loan, rather than touching the lump sum of it. Therefore, if you go for this type of mortgage you will need to have some kind of savings or investment plan running simultaneously to ensure that you can repay the price of your home at the end of the mortgage agreement. The main advantage of this type of mortgage is that you will have a lower monthly fee to pay back. The disadvantage is that you are not actually reducing your debt, it is really important if you choose this type of mortgage, that you make sure you savings / investment plan is increasing a rate that can keep up with your mortgage. You don't necessarily need to be with the same bank you took your mortgage with which can be an advantage if one bank offers a good interest rate on your mortgage and another offers high interest rates on a savings account. One of the best accounts to pay money into for many years has been an abbey building society. If you can't repay the loan at the end of period you risk losing your home.
When you take out your mortgage you need to think about a lot of different aspects and take steps to protect yourself financially. It isn't sensible to borrow the maximum mortgage offer you receive, if interest rates increase you could find yourself unable to keep up with repayments. In this regard, you also need to think about allowing for a rise in interest rates which you work out what you can afford to repay. You also need to build up some emergency savings for a rainy day!
For a quick easy way to calculate your monthly payments visit this mortgage calculator.