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Your deposit pays a portion of the house price value up front, giving you a stake in the property, otherwise known as your equity. The amount of deposit varies (although typically it’s about 5% to 20%). Thanks to your deposit, some of the property will be owned by you.

Lenders often talk about the loan-to-value (LTV) ratio. This is the relationship between the size of the loan (in this instance, your mortgage) and the price of the property. So, if your home is worth £200,000 and you have a £20,000 deposit you’d have 10% equity and an LTV of 90%.

- The size of your deposit. The bigger it is, the more options you’ll have
- Your personal income and source of income
- Your credit score and any existing credit commitments
- Your job history
- Your outgoings (including bills such as insurances, utilities, council tax, child maintenance and general lifestyle costs)

All of this information works together to determine how much can you afford. Lenders will try to take a long-term view, not just looking at affordability today, but in the future. So, they try to predict if you’d still be able to pay the mortgage if interest rates went up or your personal circumstances changed.

Tracker - A tracker rate mortgage tracks the Bank of England over a set period of time (from two years to the entire length of the mortgage. For example, if the tracker mortgage is set at 2% above the base rate and the base rate was 0.75%, the rate to start with would be 2.75%.

Tracker with cap rate - This is the same as a tracker, but with the amount that the rate can go up capped at a certain maximum level. For example, the mortgage rate could be capped at 3.5%.

Variable rate - Most tracker mortgages revert to a variable rate once the set time period is up. Variable rate mortgages can go up or down depending on decisions made by the Bank of England or the lender. This also means that your monthly payments could be subject to change during your borrowing term.

Fixed rate - The interest rate on your mortgage is fixed at the same rate for a set period, usually for two, three or five years. So, whether interest rates go up or down, you’ll have the peace of mind knowing that that your mortgage repayments will remain the same, enabling you to budget with confidence.

Whether you choose a tracker, fixed, or variable rate mortgage, it comes down to just two repayment options; capital and interest or interest-only.

With the capital and interest option, each monthly repayment you make will both chip away at the capital balance (the loan amount) you owe and pay the interest due on the loan. As time goes by, the capital portion of each monthly repayment becomes larger and the interest part becomes smaller. At the end of the mortgage term (the amount of time you spread your mortgage repayments over), as long as you make all your repayments on time and in full, the mortgage will be repaid and the property will be all yours.

With an interest-only mortgage, you just pay the interest on the amount you borrow. So, you would need to set-up a separate repayment vehicle to pay off the mortgage at the end of term.

To help you to choose the best options for you, be sure to check with a mortgage broker such as Loan.co.uk

Repayment mortgages – these pay off the money borrowed (known as the capital) and the interest. They’re paid at regular intervals over a fixed period. Because of this, they guarantee that the entire amount will be paid off by the end of the mortgage term as all the scheduled repayments are made. Also known as capital repayment mortgages, they’re the preferred choice for borrowers in the UK. An increasingly popular type of repayment mortgage is the offset mortgage, where your savings and mortgage are linked. Your savings are ‘offset’ against the balance of your mortgage to help reduce the interest paid and help pay off the mortgage quicker.

Interest only mortgages. These mortgages only pay the interest back to the lender. It’s not until the mortgage term is over that the entire capital is paid. This requires making separate arrangements to repay the capital, known by lenders as a repayment vehicles.
Interest only mortgages are much rarer than repayment mortgages and can prove riskier as the amount saved over the mortgage term might not be enough to cover the full capital. And, you could end up paying more interest as you’re paying it back on the full amount borrowed. Whereas with a repayment mortgage, you’re gradually decreasing the interest owed with each monthly repayment.

These particularly long-term mortgages have become popular, especially with first-time buyers, as they offer smaller, more affordable monthly repayments. Note that you’ll pay more in interest the longer the time period that you spread the repayments over. Short-term mortgages (20 years or fewer) help you speed through your repayments and own your home outright in less time. They cost more

per month, but you’ll save on the amount of interest that you’ll end up paying. At Loan.co.uk we offer mortgages with a term of 3 to 40 years.

You won’t have to chase several parties, Loan.co.uk manage the entire process for you:

- Submit your mortgage application
- Update the estate agent
- Instruct the surveyor
- Instruct and update your solicitors
- Sort out your B&C’s (necessary for any freehold with a mortgage)
- Ensure your mortgage is protected in the event of death and illness

That’s all there is to it, now you can live the life of a homebuyer.