Mortgage Calculators made Simple

You can apply for a mortgage directly through a bank or building society. But it is a good idea to use a comparison website, a mortgage broker, or an independent financial adviser to help you shop around and find a good deal. We recommend you use Loan.co.uk because we can find the mortgage and lender that perfectly fits your circumstances.

Once you’ve found the right mortgage for you, your lender will need various documents to continue with the application. These documents might include:

• Your proof of identity (such as your passport or driver’s license)
• Your payslips from the last 3 months
• Your bank statements from the last 3 to 6 months
• Your utility bills
• Your P60 form from your employer
• Your SA302 tax return form if you are self-employed or have multiple sources of income

Your lender may ask for more paperwork than this. These are only the basics.

How much you can borrow depends mainly on your annual income, including your:

• Salary
• Investments
• Pensions
• Child maintenance or financial support from ex-spouses
• Overtime, freelance or commission work

And it depends on your outgoings, like your:

• Bills and utilities
• Insurance payments
• Credit card repayments
• Other loan repayments
• General lifestyle expenses (food, clothes, travel, entertainment, etc.)

The lender will also consider whether you will still be able to pay your mortgage in the future. For example, if interest rates increased or if your income suddenly went down.

Your credit history and the term of the mortgage will also affect how much you can borrow.

Make sure you do not borrow too much and stretch yourself too thin. Think ahead, build up your savings and protect yourself from the unexpected.

At Loan.co.uk, we offer mortgages ranging from £10,000 to £100 million.

You will almost definitely need a deposit. Your deposit is the money you pay upfront, giving you a stake in the property, known as equity. And with deposits, size matters. If your deposit is large, you may be able to borrow more and be offered lower interest rates.

The size of your deposit will affect your Loan-to-Value ratio, or LTV. LTV is the relationship between the size of your mortgage and the price of the property. So, if your home is worth £200,000 and you have a £20,000 deposit, you’d have a 10% equity and an LTV of 90%. The lower your LTV, the lower your interest rate is likely to be. This is because the lender is taking a smaller risk. The lowest rates are typically reserved for people with a 40% equity or more.

Choosing the right type of mortgage essentially comes down to how you want the interest to behave. The main types of mortgage are:

• Fixed rate
• Standard variable rate
• Discounted variable rate
• Tracker rate
• Tracker with capped rate

Fixed rate mortgages

The interest rate will be fixed at a certain amount and not change, regardless of what happens to other interest rates. They typically last for 2 and 5 years, after which, you will most likely be moved to a variable rate mortgage. Some lenders may even offer you a fixed rate for up to 10 years.

Advantages

• Your monthly payments will remain the same, making it easy to budget for.
• If the Bank of England base rate goes up, your payments won’t go up with it.

Disadvantages 

• They are likely to have more expensive rates than other mortgage types because the lender is committed to a single rate for the entirety of the fixed period.
• If the Bank of England base rate goes down, your payments won’t go down with it.
• You may be charged a penalty if you try to get out of the deal before the end of the fixed term. This is known as an early repayment charge, or ERC.
• You will want to find a new mortgage deal a few months before the end of the fixed term, otherwise you will be switched to your lender’s standard variable rate, which is probably higher.

Standard variable rate mortgages

The interest rate can change at any time and will last the entire length of the mortgage term.

Advantages

• You can overpay or switch to a different deal at any time without penalty.
• You may have lower arrangement fees than a fixed rate or tracker rate.
• If interest rates go down, your monthly payments may go down too.

Disadvantages

• Your rate can change at any time during the term, making it more difficult to budget for.
• Other types of mortgage will likely have more competitive rates.

Discounted variable rate mortgages

The interest rate is set at a fixed percentage below the standard variable rate. These mortgages typically last from 2 to 5 years. Once this deal ends, you will be moved onto the lender’s standard variable rate.

Advantages

• The rates are cheaper than other types of mortgages, keeping monthly repayments down.
• If the lender’s standard variable rate goes down, your repayments will go down too.

Disadvantages

• The rate can still go up, meaning your payments will also go up and be difficult to budget for.
• You may be charged ERCs if you try to leave before the end of the discount period.

Tracker rate mortgages

The interest rate is a fixed percentage above the Bank of England’s base rate, and changes as the base rate changes. This mortgage also lasts for between 2 and 5 years, although some lenders offer deals that last the entire mortgage term. Once the deal runs out, you will most likely be automatically switched to the lender’s standard variable rate.

Advantages

• If the Bank of England base rate goes down, so will your monthly repayments.
• You may be able to make unlimited early repayments, depending on your lender.

Disadvantages

• If the Bank of England base rate goes up, so will your monthly repayments.
• You may have to pay ERCs if you want to switch deals before the end of your current deal.

Tracker with capped rate mortgages

The interest rate will act the same as it does with the tracker rate. But there is a maximum level at which the interest rate will not rise any further.

Advantages

• If the Bank of England base rate goes down, so will your monthly repayments.
• You may be able to make unlimited early repayments, depending on your lender.

Disadvantages

• If the Bank of England base rate goes up, so will your monthly repayments, but only to a certain level.
• The capped rate can be quite high.
• You may have to pay ERCs if you want to switch deals before the end of your current deal.

Lenders want to minimise their risk as much as they possibly can, so they will examine your credit history to predict how you will behave in the future. The interest rate and type of mortgage that you are offered will partly depend on your credit history. It is likely that the better your credit history is, the lower your interest rates will be.

It is possible to get a mortgage if you have no credit history, but it will be difficult. Without any history to go by, lenders will have no guarantee that you are a responsible borrower.

If you are worried about your lack of credit history or bad history, you should try to build and improve your credit history. You can do this by making on-time payments on loans, bills, and credit cards. You can apply for special credit-building credit cards if you’ve never had one before. Registering to vote will also improve your credit history, as it helps lenders examine your history and confirm your address.

When repaying your mortgage, there are 2 main avenues; through a capital and interest mortgage or an interest-only mortgage.

Capital and interest mortgage

Also known as a repayment mortgage. This pays off the money owed on the property (the capital) as well as the interest at regular intervals throughout a fixed term. This guarantees that by the end of the mortgage’s term, you will have completely paid off the mortgage, and the property will be entirely yours.

Interest-only mortgages

With an interest-only mortgage, you do not pay off the capital. You only pay off the interest on the amount you borrowed. This means that at the end of the term you will have to pay the total amount you borrowed using savings, investments or other assets you have. These are known as repayment vehicles.

Overpaying your mortgage can save you money on interest payments and clear your mortgage months, or even years, earlier than originally planned. You can overpay via one-off lump sums, regular overpayments, or a combination of the two.

But there are times when overpaying is not a good idea. Before you decide to overpay there are a few questions you should ask yourself:

• Does my lender have any restrictions on overpaying? Some mortgages limit overpayments to a percentage of the amount owed and you’ll be charged a fee if you exceed that limit.
• Do I have any other debts that need paying? Compared with credit cards or personal loans, your mortgage has a low interest rate. It would make more financial sense to pay off those debts first.
• Can I put this money into a pension scheme? It is always a good idea to save for retirement, and pensions are a tax-efficient way to save as the government tops up your contributions with tax relief.
• Do I have savings for an emergency? What would happen if you lost your job, your boiler broke, or you became very ill? It is a good idea to have at least 3 months’ salary saved up, just in case.
• Can I get a savings rate higher than my mortgage interest rate? You may be able to save more money by putting it in a savings account. It all depends on how the account’s interest rates compare with your current mortgage’s interest rates.

If you are having trouble repaying your mortgage speak to your lender immediately. They might be able to sort out an alternative repayment plan. They cannot seek repossession until all other reasonable attempts to resolve the situation have failed.

You should try to cut back on other expenses. Shop around for the best deals on food and energy bills. Speak to a free debt counselling service like Citizens Advice or Shelter. As a last resort, you can try to sell your home, but make sure you have somewhere else to move into.

If all reasonable attempts to resolve the situation have failed and you are still missing repayments, then your home may be repossessed.

The fees and costs can vary depending on your lender. How much you will have to pay depends on your lender and your personal circumstances. Make sure you talk to any lenders, brokers, or solicitors and have them explain all the possible fees to you. Here are some fees and costs that you may want to be prepared for:

Costs involved in getting a mortgage

• Mortgage product fee. This is a fee for arranging the mortgage, sometimes called the arrangement fee or completion fee. It could be a flat fee or a percentage of the loan amount.
• Broker fee. If you arrange your mortgage through a broker, you may have to pay them a fee for their services.
• Valuation fee. Your lender will carry out a valuation of the property you intend to buy. You could be charged for this.
• Account fee. You may be charged for the creation and management of your mortgage account. 

Costs involved in buying or selling property

• Survey costs. A surveyor will check the property for any damage or issues, which can help you negotiate prices with the seller. It’s not a legal requirement, but it is a good idea.
• Estate agent fees. If you’re selling a property with an estate agent, they will charge you a fee. It will either be a percentage of the sale price or a flat fee.
• Solicitor fees. Solicitors and conveyors will charge for their services.
• Money transfer fee. Most lenders charge a small fee for transferring the mortgage money you’ve borrowed to your solicitor, so that they can complete your property purchase.
• Property sale tax
  • Stamp Duty Land Tax (England and Northern Ireland). You will have to pay Stamp Duty Land Tax for buying residential properties worth over £125,000 or non-residential properties or land worth over £150,000. You will get a tax relief (discount) if you are a first-time buyer spending less than £500,000.
  • Land and Buildings Transaction Tax (Scotland). This is a progressive tax on property transactions starting at £145,000.
  • Land Transaction Tax (Wales). You will have to pay Land Transaction Tax on residential property transactions over £180,000. The rates may be higher if you already own one or more residential properties.
• Land registry fee. This is the cost of updating the national Land Registry to show that you now own the property with a mortgage. It is tied to the purchase price.

Costs involved once you’ve moved in 

• Early repayment charge. You may have to pay this if you overpay more than your lender allows or you change your mortgage deal before its term ends.
• Missed payment fee. You may be charged if you unable to keep up with your mortgage payments.
• Mortgage exit fee. You may have to pay this once you have finished paying off your mortgage, if you change your lender or if you transfer your borrowing to another property.