HOW TO CHOOSE A MORTGAGE
Even if you are a first time buyer; choosing a mortgage doesn’t have to be complicated. There are just four simple choices to make….

1) TERM
How many years do you want to take the mortgage over?

Typically first time buyers used to take mortgages over 25 years but nowadays young first time buyers tend to take their mortgages over 30, 35 or even 40 years.
If you take a mortgage over a longer term your payments will be spread out so that in the early years your monthly payment is lower.
However in the long run you could end up paying more.
For example if you borrow £220,000 over 35 years at 2.99% your initial monthly payment will be £845.43 pm compared to £1,042.11 if you took it over 25 years.
However at the end of 35 years you could have paid over significantly more in interest as you will paying for an extra 10 years.


2) REPAYMENT METHOD
You can usually choose to repay your mortgage in one of two ways as follows:

Interest Only
As their name suggests, with an interest only mortgage you only repay the interest on the mortgage.

At the end of the term the capital is still outstanding. Therefore you will usually need to take out some kind of investment policy to save up enough money to repay the mortgage at the end of the term.

Traditionally the preferred product for repaying the capital of an interest only mortgage was a mortgage endowment policy (which included a set amount of life cover) – although more recently customers are using Individual Savings Accounts (ISAs) and pensions to build up a sufficient sum and taking advantage of the tax breaks offered by these products.

Mortgage lenders are cautious about offering interest only mortgages and usually restrict the amount they lend you to typically 50% of the property value. They will also want to see evidence of how you will repay the loan at the end of the term.



Repayment (Capital & Interest)
Under a repayment mortgage your monthly repayments consist of both interest and capital hence, over time, the amount of money you actually owe will decrease.

In the early years your repayments will be mainly interest and therefore the capital outstanding will reduce slowly in the early years.

Whilst this method ensures that the mortgage is repaid at the end of the term providing all payments are made on time and in full, it is generally more expensive at the start.




3) PRODUCT
For marketing purposes mortgage lenders use numerous different names to describe their products e.g. tracker rate, discounted rate, cap and collar, low start mortgage etc.

In reality there are two types of mortgage product as follows:

Fixed Rate
A fixed rate mortgage allows you to repay interest at a fixed rate, irrespective of any base rate fluctuations. In other words your monthly repayments will remain the same every month for a time period agreed between you and your lender (typically 2, 3 or 5 years). The lender may also charge a ‘booking/arrangement fee’ to apply for this type of mortgage and you will be liable to pay a penalty if you try to redeem the mortgage or make changes before the end of the fixed rate deal.



Variable Rate
A variable rate mortgage is one where the interest rate charged (and hence your monthly payments) can change. The interest that you pay is usually following another rate such as the Bank of England Base rate (known as a Tracker Mortgage) or the lenders own standard variable rate (known as a Discount Rate). Having a variable rate mortgage means you may benefit if interest rates fall but it also means that you may end up paying more if interest rates go up.




4) LENDER
The final decision that you have to make when choosing a mortgage is which lender to go with.

Too many mortgage brokers simply search and apply for the cheapest deal that they can source without considering if the mortgage application will be successful with that lender. This could mean you waste time and money applying for the wrong mortgage and ultimately lose your dream home because the seller has become impatient.

This is where SO Mortgages can help you! As we specialise in affordable housing we deal with the same group of lenders on a daily basis. We clearly understand the intricate criteria of each lender.

For example:
- Which lenders accept a 5% deposit?
- Which lenders accept foreign Nationals on visas?
- Which lenders offer mortgages to contractor on day rates?
- Which lender will ignore my large pension contributions?
- Who will give me a mortgage if I am working on a temporary contract?
- Who will give me a mortgage if I have just started a new job?
- Who will lend on a 10 storey block of flats above a shop?
- Which lender will use all my overtime, commission or bonus?
- Who will lend me a mortgage up to age 70?


In addition we have specialist Relationship Managers with each lender who can advise us before we charge you a fee and submit a mortgage application. Consequently we have a very high success rate and less than 2% of our applications are unsuccessful!