What are the main two types of mortgage available in the UK?  

 

The two main mortgage types available to consumers in the UK are known as the repayment mortgage (capital and interest mortgage) and the interest only mortgage. With a repayment mortgage your debt will reduce over time, with your repayments going towards both interest and the main loan. With an interest only mortgage your repayments will go towards the interest on your loan but will not touch the principle loan balance. 

 

 How is the principle loan balance repaid at the end of the interest only mortgage term? 

 

 

Because the repayments made on an interest only mortgage only go towards the interest, you will have to repay the original loan amount in full at the end of the mortgage term. In order to do this you will have to take out another investment to run alongside your mortgage, which will hopefully enable you to accrue the funds that you need to pay off the mortgage.

Can I get a mortgage if I have a bad credit rating or poor credit history? 

More and more lenders are now catering for customers that have bad credit history, especially when it comes to secured finance such as a mortgage. However, you will find that the interest rates charged to bad credit consumers is higher than the usual rate, and you may need to opt for a smaller loan or raise a higher deposit to be accepted. 

 

What about if I’m self employed? 

 

If you are self employed you may encounter many of the same issues as a consumer with bad credit, as many lenders see self employed applicants as a high risk due to fluctuating income and risk of loss of business. However, there are an increasing number of lenders offering more competitive deals for self employed people that can prove their average income for the past few years. 

How can I find the right mortgage for my needs? 

The important thing is to work out how much you can afford to repay each month without struggling, and determine whether you want the peace of mind of a fixed rate or a variable rate. You can then compare a range of mortgage deals online, and you can find out how much each lender would be prepared to lend to you based on your income and expenditure, as well as how much the monthly repayment would be.