Houses are expensive. When the time is right to buy a home, the chances are that you’re likely to need to borrow money.
A mortgage is a loan which is secured against the property. This means that if you fail to keep up repayments or comply with other terms and conditions of the mortgage agreement, your lender can take action to repossess the property.
Your mortgage will usually be for a fixed period of time known as the term of the mortgage – usually for 25 years, although there is no upper or lower limit on the length of the term.
Mortgages with long terms usually have the effect of reducing the monthly payments, but increasing the total interest paid over the term. In contrast, a mortgage with a short term will usually cost you more each month, but the overall interest bill will be less.
Mortgages can be obtained from a variety of sources and lenders' criteria can vary. It's therefore important you look into the options available before making any decision. The range of organisations which can provide a mortgage, or introduce a borrower to a mortgage provider, includes:
- building societies
- mortgage brokers
- insurance companies
- builders of new properties, who may arrange mortgage assistance on a new home as part of their sales package
Since April 2014, lenders have been carrying out more thorough affordability checks. This is to make sure that anyone buying a home can afford the initial cost of buying the property and can manage repayments now and in the future, particularly if interest rates rise. Lenders have also to consider the impact of known future changes, such as retirement or starting a family, when assessing affordability.
There are two basic types of mortgage - repayment mortgages and interest-only mortgages. An interest-only mortgage which uses some form of investment, such as an endowment policy, to pay off the loan will carry some financial risks, and may not necessarily be appropriate for everyone.
You may also be eligible to apply for the Help to Buy (Scotland) Affordable New Build Scheme which is run by the Scottish Government and is open to buyers from 1 March 2016. Under this scheme the Scottish Government will help buyers to purchase a new build property by taking an equity stake of up to a maximum 15% of the value of the property. Find out more about the scheme here.
If you need advice about which is most appropriate for your circumstances, you should seek independent financial advice from a financial adviser or contact any of the organisations below.