A residential mortgage is available for the borrower’s main residence. These mortgages, their providers and the mortgage brokers who advise on these mortgages are all regulated by the Financial Conduct Authority (FCA). This ensures the companies offering these mortgages, the people who are arranging them and the products on offer are all subject to strict guidelines to help protect you, the borrowers.
Residential mortgages are the most common mortgages on the market and the most advertised by the High Street banks and building societies. There are thousands of different residential mortgage products on the market, so how do you know that the one your bank is offering you is the right one for your needs? Speaking with us can help find you that perfect mortgage for your home.
Repaying your residential mortgage
Repayment / Capital and Interest
This is the most common method offered when you select a mortgage product. When you make your mortgage payment every month you will be paying off some of the interest applied to your mortgage plus some of the mortgage balance. This is the best repayment method to ensure your mortgage is repaid in full at the end of the mortgage term, providing you make each monthly payment when it is due. Over the course of the mortgage, the amount of interest being applied will reduce and the amount of the mortgage balance being repaid every month will increase.
In some situations, an interest only mortgage can be applied for on your residential property. As the name suggests, you only pay the interest that is charged on the mortgage balance every month. This isn’t something that should be considered as a long term option as you will have to find the money at the end of the mortgage term to repay the mortgage. There are stricter criteria to pass for this option and it varies from lender to lender. Examples of some restrictions are listed below:
- Minimum income requirements
- Minimum level of existing equity in the property
- Age restrictions
- Loan to value restrictions
- The repayment vehicle
For more information if this would be a suitable option for you, you will need to speak with us for guidance and advice.
Part and Part
Instead of having a full repayment mortgage some lenders allow a repayment method known as ”Part and Part”. This is where part of the mortgage is taken on a repayment basis so you will be repaying some of the mortgage plus interest on that mortgage each month, then the rest of the mortgage only has the interest payments collected each month. This can help with affordability for larger mortgages, but it will be subject to the tighter criteria set by the lender as with the interest only mortgages. You will also need to have a suitable repayment method in place for the remaining mortgage balance at the end of the term.
This type of mortgage works by having a portion of the mortgage amount placed into a ”savings account’ with the mortgage provider. Interest is not earned on the funds in the savings account, but the loan amount on which interest is charged is reduced by the amount held in the savings account e.g. if the mortgage was for £300,000 in total, but only £280,000 was drawn by the borrower, interest would only be charged on £280,000 rather than the full £300,000. Typically a mortgage lender offering an off-set mortgage will allow the borrower two options – a repayment amount that remains the same and will reduce the term of the mortgage; or reducing the monthly payment by removing an offset savings bonus to the monthly payment – this does result in variable mortgage payments.
First Time Buyers
There are a lot of questions when you are buying your first home, that’s why we have a dedicated first time buyer page for you to find out all you need to know!