Mortgages explained

Securing a mortgage is integral to buying a house for most people. But what is a mortgage and why do you need one? This is our area. SPC Scotland is expert advice just for you.

If you are planning on buying a house or flat, chances are you will need a mortgage. Putting it simply, a mortgage is a loan that is used to buy a property. The mortgage loan is secured against the property. You will need to make regular repayments to the lender to pay back both the balance of the mortgage and the interest that you accrue.

Different types of mortgage

There are a variety of different types of mortgage available. You should choose the one that best suits your needs.

• Fixed rate – your payments will be fixed for an agreed length of time, giving you security in knowing how much you will pay each month
• Tracker rate – your payments will be set at a fixed rate above or below the Bank of England’s base rate, meaning your repayments could go up or down
• Variable rate – your payments will go up and down depending on the Bank of England base rate and your lender’s standard interest rate

Most people will take out a repayment mortgage. This means they will pay back both the amount of the loan and the interest that the lender applies to it. How much interest depends on which type of mortgage you choose (see above).

Some people will opt for an interest only mortgage. If you do select this option, you need to make sure that you have the means to pay back the loan at the end of the term, as your payments to this point will have covered the interest on the loan only.

The loan to value is the amount of money that you need to borrow, compared to the value of the property. Typically, loans will be for around 60-90% of the value of a property, although they can vary a lot.

Some loans over the facility to make an overpayment and this will let you pay off your loan quicker, which can save you money in the long run. Speak to your independent mortgage adviser to find out more.