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When everyone has a home

Housing advice for Northern Ireland

Choosing a mortgage

Most people need to apply for a mortgage when they’re buying a home.  This is a long term loan from a bank or building society.  The loan is secured on your home so, if you stop paying, the bank can repossess the property. You should speak to an independent financial adviser to find out which type of mortgage is best for you.

It’s essential that you get advice and understand your options if you’ve fallen behind on your mortgage payments and you’re worried that your home may be repossessed.

Choosing a mortgage

A mortgage is a loan to help you buy a home.  They are long term loans with interest so when you choose a mortgage you need to know that you can afford the repayments even if the interest rate goes up and your payments increase.

Get independent advice when you’re looking for a mortgage and shop around and use comparison websites to find the best deals.  Bear in mind that mortgage brokers may receive commission for certain products so make sure that you trust whoever is advising you.  Check if your broker has signed up to The Mortgage Code, a code practice agreement.

Types of mortgage

Most mortgages will require a deposit of between 10 and 30%.  If you have a larger deposit you’ll get a much better deal on your mortgage as it’s not as risky for the bank.  Some banks will offer you a mortgage with a 5% discount, including banks operating under the Help to Buy scheme.

Many banks won’t offer interest-only mortgages anymore.  Most people end up with a repayment mortgage.  Your monthly payments on a repayment mortgage are made up of capital repayments and interest charges.  In the first years, most of your payment will go towards interest.  But, as the years go by you’ll pay more and more off the balance of your loan.  The full loan will be paid off at the end of the term if you made all your payments.

Interest only mortgages were quite common until the recent financial crash.  These mortgages allowed you to only pay off the interest on your mortgage so monthly payments were low. If you have an interest only mortgage you should also be paying into an endowment or insurance policy to make sure you have a lump sum to pay off your loan when the mortgage term ends.  If you don’t do this you’ll end up owing the full amount of the loan at the end of the period. 

Many banks won’t offer interest-only mortgages anymore.  Most people end up with a repayment mortgage.  Your monthly payments on a repayment mortgage are made up of capital repayments and interest charges.  In the first years, most of your payment will go towards interest.  But, as the years go by you’ll pay more and more off the balance of your loan.  The full loan will be paid off at the end of the term if you made all your payments.

For more information on choosing a mortgage, visit NI Direct.

Interest rate

A lender's basic mortgage will usually be at what is called the standard variable rate of interest (or SVR) which goes up and down as bank interest rates change. It is not always easy to compare rates of different lenders, but the annual percentage rate (APR) must always be shown in advertisements or leaflets.

The APR is higher than the SVR because it includes one-off charges like arrangement and valuation fees. If a mortgage starts with a low fixed rate of interest which will increase to the SVR after a number of years, the lender must include this in the APR calculation. The APR should give a more accurate picture of how one mortgage compares with another.

Remember, interest rates can always change.  At one point in the 1980s interest rates rose as high as 16%. Don’t stretch your finances too far with a mortgage and make sure you will be able to deal with an interest rise.

The Money Advice Service has some really useful information to help you work out how much you can afford to borrow

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