The Basics About Residential Mortgages
Although there is a huge range of different types of mortgages on the market, one of the most commonly required is a residential mortgage. At one stage or another in their lives, almost everyone will have a residential mortgage, especially if they own a property, and without a mortgage of this kind, a huge percentage of people would struggle to get on the property ladder. If you’ve never had a mortgage before and you’re intrigued to learn more about what residential mortgages are, below we have answered some of the most commonly asked questions relating to this particular type of mortgage.
What is a residential mortgage?
A residential mortgage is a specific type of loan that is designed to help you purchase a property you’re going to live in. This loan is secured upon the property you’re purchasing and you will pay this loan back to the lender over a predetermined period of time. Once you have paid off your residential mortgage, you will officially own the whole of your property.
The important thing to note with a residential mortgage is that it's solely for residential purposes. So, unlike buy-to-let mortgages where you can purchase a property and let it out to other people or commercial mortgages where you can purchase a property and use it as a business premises, you have to live in the property you purchase with a residential mortgage yourself.
Are there different types of residential mortgages?
Generally speaking, residential mortgages can be split into two categories; repayment mortgages and interest-only mortgages.
A repayment mortgage is the most straightforward and it is usually the first option buyers consider. When you take out a repayment mortgage, your repayments to the lender will be inclusive of both interest and a sum of the original loan capital. At the end of your mortgage term, you will own your property and have no further payments to make.
An interest-only mortgage is slightly different and simply put, you will only pay interest back to the lender in your monthly mortgage repayments. With this type of mortgage, you won’t repay any capital during the mortgage term and you will have to repay the whole loan capital at the end of the mortgage instead. You can either save money separately in order to do this or you can sell your home and pay the mortgage back this way.
Although repayment mortgages are more expensive on a monthly basis, they are usually recommended by mortgage advisors simply because you will own your home at the end of the mortgage term without having to pay a lump sum to the mortgage provider. Then, whenever you sell your home, the money you make doing so will be yours to do with as you wish.
How much deposit do you need for a residential mortgage?
More often than not, when you’re applying for a residential mortgage, you will need to have at least a 10% cash deposit. This will mean you’re applying for a Loan to Value (LTV) rate of 90%. The vast majority of mortgage providers will only offer buyers a maximum LTV ratio of 90%, however, some may have a 95% maximum LTV ratio.
It’s worth noting that if you have more than 10% of the property's value that you can put down as a deposit, then it is worth considering doing this. The more you are able to pay as a cash deposit, the less you will need to borrow from a lender and, in turn, the lower your monthly mortgage repayments will be. Often, with a lower LTV ratio, you will be offered better interest rates as well as you will be perceived as less of a risk to lend money to.
Navigating the mortgage market
Hopefully, you will now know a little bit more about residential mortgages and if you’re interested in purchasing a property, don’t hesitate to contact our team at Mortgage Required to assist you with your mortgage application. As an independent mortgage broker, we will search the whole mortgage market for you and find you the best possible product. We have helped 1000s of people find mortgages that meet all of their needs and budget, and we will gladly assist you too. Regardless of your individual circumstances, we can assure you that our experienced team will do all they can to make things easier for you when you’re trying to navigate the mortgage market.
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