A First Time Buyer's guide to Mortgages

• Mortgages are paid off over a number of years, called terms. In the UK they typically range from 25 to 40 years, but they can be shorter.
• Shorter mortgage lengths typically have higher monthly payments, but you’d pay less interest, so you’d pay the bank less in total.
• Longer mortgage lengths have lower monthly payments which makes them more affordable, but you’ll end up paying more interest over the life of the loan, so you’d pay the bank more in total.
• Not everyone can get long mortgage terms. That’s because most lenders will only let you pay off a mortgage until you’re 70-80 years old. At that point, they’re worried you might die, or might not be able to afford to pay your mortgage out of your pension.

• Lenders make money by charging interest on mortgages, which can be a substantial cost over the length of the mortgage.
• For example, if a £250,000 mortgage paid off over 25 years has a 5% interest rate, the total amount paid over the 25 years will be nearly £440,000 (£190,000 of which is interest).
• This interest rate affects the monthly repayment amount. A higher rate means higher monthly payments.
• For example, taking the same mortgage as above, the monthly repayments would be approximately £1,460. If the interest rate halved to 2.5%, the monthly repayments would be approximately £1,120.
• Remember, you need to consider mortgage fees as well as interest rates. The lowest interest rate mortgages often have the highest fees, so in total you may end up paying the same or even more than for higher interest mortgages.

• Many lenders charge fees to organise your mortgage, but some will charge zero fees.
• The lowest interest rate mortgages often have high fees to compensate, so make sure you read the terms carefully!
• These fees can include arrangement fees, booking fees, valuation fees, and other fees.
• The average fees are about £1,000, but can vary from £0 to £2,500+.
• The biggest fee is normally the arrangement fee, and this can often be added onto your mortgage instead of being paid upfront. But, do be aware that you’ll be charged interest on this fee if you add it onto your mortgage.

• Mortgages can have fixed rates, where the interest rate remains the same over a number of years. Or, they can have variable rates, which can change in relation to the Bank of England's base rate.
• Most people start on a fixed rate mortgage, because fixed rates tend to be lower than variable rates at the point you apply for a mortgage.
• You can typically fix a mortgage for 1-10 years, after which you will either need to remortgage, or move onto a variable rate mortgage.
• The downside of a fixed rate mortgage are that you’ll have to pay big early repayment charges if you need to move or sell within a fixed rate period, unless you can port the mortgage.

You have a decision to make on how long you want to fix the mortgage for.

• You might want to fix for a long time if you’re not planning to move again soon, and you prefer the stability of knowing what your mortgage payments will be for many years to come.
• You might want to fix for a shorter time if you might move or sell within a few years, might add a partner to the mortgage, or think the mortgage rates will come down in a few years.

• You may end up needing to sell your home before the end of the fixed-rate or introductory period of your mortgage.
• Paying off a mortgage early can incur charges, particularly if it's during a fixed-rate period.
• These early repayment charges can be up to 5% of the outstanding loan, so can be very large. Make sure you check what these charges are.
• Even outside the fixed-rate period, some mortgages have additional exit fees of £75-300 (sometimes called deeds release fees), so check for those.

• If you move house before you’ve paid off your mortgage, you may want to transfer your existing mortgage to your new property. This process is called porting.
• Porting can be particularly useful if you’re on a fixed rate mortgage and want to avoid early repayment charges, or want to keep your fixed interest rate when you move.
• Not all mortgages are portable, so check the terms of any mortgages you’re interested in.
• Do be aware that there are also situations where a mortgage can’t be ported. These include if you’re buying or selling a Shared Ownership property, or if you’re adding a partner to the mortgage.
• If your chosen mortgage isn't portable, you might want to consider fixing the mortgage for a shorter period of time, to avoid early repayment charges if you move.

• Once you’ve bought your home and are paying your mortgage, some lenders allow you to pay more than the monthly mortgage payment they require. This is called “overpaying”.
• Lenders typically let you overpay each year by up to 10% of the total amount you still owe them, but you should check the terms of the mortgage you’re interested in.
• While paying more might not sound like a good thing, overpaying can be a sensible thing to consider if you have spare cash.
• That’s because the sooner you pay the bank back, the less interest you’ll pay to them overall.
• However, overpaying isn’t always the best choice. You should consider whether the interest you’d save by overpaying is better than the returns you’d get from investing your money somewhere else, such as a high interest savings account.

• Insurance: You might be required to purchase life insurance or buildings insurance as part of your mortgage agreement.
• Specialist surveys: The lender might require you to get a specialist survey of the property for an issue such as damp.
• Restrictions: A residential mortgage won’t generally let you rent out your property, which can be an issue if you need to move for work. Some mortgages even require you to ask permission before getting a lodger.