Our 4 Most Asked Mortgage Questions (And Their Answers)

Our 4 Most Asked Mortgage Questions (And Their Answers)

June 17 2019 | Category: Money advice

Buying a property isn’t a simple process. There are a lot of steps to take, hoops to jump through and things to remember. In fact, if you’ve never done it before, it can feel a bit daunting. And that isn’t helped by the fact that there’s so much new, property-specific lingo to learn so that you can keep track of what’s going on.

Something we’ve noticed is that mortgages in particular seem to trip people up. While most people have an idea of what they are even if they haven’t bought a property, not many people really understand the ins and outs, and how it impacts your ability to buy a home. So today, we wanted to give you a hand by featuring some of the most common mortgage questions we get asked – and answering them for you!

What Is A Mortgage?

Let’s start with the basics. A mortgage is a loan that you take out specifically to buy property or land. They work in a different way to normal bank loans, and last a lot longer. Typically a mortgage may run for 25 years, but you can get shorter or longer terms if you need to. The value of the loan you take out is ‘secured’ against the value of your home until you have fully paid it off (which is why you see adverts saying that your home can be repossessed if you don’t keep up with the payments). Generally, you pay your mortgage back in monthly installments, which can be reducing the amount you owe, or just paying the interest, depending on what kind of mortgage you have.

Wait, There Are Different Types Of Mortgage?

Oh yes! There are lots of different types of mortgage out there, each designed to help a certain kind of person afford their own home. While we can’t list all of them here, the most common options are:

  • Fixed-Rate
  • Variable Rate (which have around 4 sub-mortgages with different interest options)
  • Interest Only (which have become less popular recently)

There are also a few ‘scheme specific’ mortgages, like the Help To Buy mortgage or a company director mortgage, which are targeted at a very specific type of person.

What Is A Decision In Principle, And Why Do I Need One?

An Decision in Principle (or DIP) is a document that confirms how much money you can borrow and from which lender. To work this out, the lender will ask you questions, carry out a credit search, view your credit score and maybe even ask to see documentation to prove that you can afford the amount you’re asking for. Once you’ve been approved, you’ll be sent an DIP certificate. This usually only takes a matter of hours, but some lenders do take longer to process things. Once you have an DIP, you can confidently go and make an offer on a house, knowing that you have the funding behind you. It’s not essential, but it’s a good idea to have, as it can help you feel more secure in the buying process, and make you look like a more attractive buyer.

How Does Applying For A Mortgage Work?

Generally, applying for a mortgage is a two-step process. First, you will need to do some basic fact finding to work out how much you could afford, which mortgage product is right for you and which lenders would be willing to work with you. That can mean a lot of backward and forwarding with banks and lenders, lots of meetings and hours wasted with lenders who could ultimately say ‘no’. So we recommend working with an adviser (like us) to help cut through that fuss and find the right lender for you, quickly.

Once you know what you need and who will help, you can begin the application process. The lender will do a full ‘fact-find’ into your financial situation and history, as well as an affordability assessment for your payments, and the impact any interest rate rise would have on your ability to afford your repayments. You’ll need to provide evidence to help them do this, and when they’re finished, you’ll be told if your application has been accepted or rejected. If it’s accepted, then the lender will provide you with a ‘binding offer’, which comes with a 7-day ‘reflection clause’ so that you can make comparisons and consider the implications of accepting the offer.

At Chilvester Financial, we spend a lot of time with first time buyers, helping them understand the process and guiding them through what to do next. The mortgage is a pretty big chunk of the administration of buying a house, and it can be a bit daunting to try and go through it along. Add into that the fact that most high-street banks will only offer you 2 or 3 choices, with no flexibility to fit your needs, and it’s no surprise people get so stressed when we say the word ‘mortgage’! Our experts have access to a wide range of mortgage suppliers – not just banks, but independent lenders as well, so we can find the right deal for you, instead of trying to cram you into a box that isn’t a good fit for you. To find out more about our mortgage services, just get in touch with the team today.