Taking out a mortgage to buy your home will probably be the biggest financial commitment you ever make. You will be committing yourself to making payments every month, possibly for as long as 30 years, and if your mortgage interest rate changes, your payments could change too.

Choosing the right mortgage can be confusing because there are so many different types available - and so many lenders to choose from, each with different rates and special deals. This Mortgage Guide has been designed to help you understand the steps involved in taking out a mortgage such as:

The Standard variable-rate mortgage
With this type of mortgage your payments go up and down as the lenders standard variable rate changes. Mortgage interest rates usually move in line with the base rate set by the Bank of England, although there is often a delay between the two.

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The Base-rate tracker mortgage
This is similar to a standard variable rate mortgage but the rate is directly linked to the Bank of England base rate and immediately alters with changes in that rate.

Tracker mortgages are basically variable-rate deals, but instead of the interest rate you pay being based on your chosen lender's standard variable-rate (SVR) it is linked to an outside force. This is usually the Bank of England base rate decided each month by its Monetary Policy Committee but it can be the London Interbank Offered Rate (LIBOR).

The interest rate you pay is a set margain above, or below, the rate that is being tracked and it changes as the rate moves. So if you have a base rate tracker, your repayments will change whenever the Bank of England changes its interest rate.

On the plus side, you don't have to rely on your lender dropping its mortgage rate in line with any cuts in the base rate set by the Bank of England. You may also find it easier to keep track of what you're paying as base rate decisions are widely reported in the press.

On the downside, the rate you pay will automatically rise if the base rate rises, regardless of whether your lender has decided not to increase its mortgage rate by the same amount.

Choosing this type of mortgage does mean you must be prepared to take the rough with the smooth and may not suit you if your budget is tight. As with any variable rate mortgage the interest rate could change as often as every month. However, if you have stretched your budget to afford your mortgage, this may not suit you.

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The Fixed-rate mortgage
As the name implies, with this type of mortgage your rate is fixed for a stated period of time, so your mortgage payments are effectively 'frozen'. This can help to make budgeting much easier, very helpful when you're buying your first home or starting a family for example.

One of the main reasons why a fixed-rate deal is so attractive is that you know exactly how much your mortgage will cost for a given period. If you know money is going to be stretched in the first few years you own your home, the security of knowing how much your repayments will be each month can give you valuable peace of mind.

That's the advantage of choosing a fixed-rate deal, but what about the downside? Well, the disadvantage of a fixed-rate loan is that the lender's standard variable rate (SVR) could fall below your rate, meaning you end up paying more than other borrowers. If you think interest rates are going to fall, you would be unwise to commit to a fixed-rate mortgage.

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The Discount-rate mortgage
Many lenders offer discounts from their standard variable rate or tracker rates for a set period. This is a good way for borrowers to keep repayments lower in the early years of the mortgage.

If you are a first-time buyer you may be better off with a fixed or capped rate that guarantees your mortgage payments won't exceed a certain level. Choosing a discounted rate means taking a gamble, what you actually pay can move upwards as well as downwards. Although you still pay less when rates are rising, you have no control over how high they will go.

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The Capped-rate mortgage
With a capped mortgage your mortgage rate can vary, but only up to an agreed limit, the 'cap'. Once at this limit, if mortgage rates go higher, your mortgage rate, and therefore your repayments stay the same. If rates go down, so
will your repayments. A variation on this is to include a 'collar'.This is a rate below which your rate cannot fall.

You will always know what your maximum outgoings will be - the cap sets the limit - and if interest rates fall, you could pay less. For this reason, capped rates are often higher than fixed rates.

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The Cashback mortgage
Here, the lender offers a cash lump sum to new borrowers. The lump sum can be quite large - perhaps several thousand pounds. The cashback can be used in any way you wish, to pay for some home improvements, buy a car or even have a holiday. It's up to you.
Please note that you will make monthly payments for the term of the mortgage on the cashback amount.
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The Flexible mortgage
These can take many forms and are designed to offer the borrower a variety of repayment features, putting you in control. The nature and extent of the flexibility can differ from one lender to another, but usually flexible mortgages
offer one or more of the following: Overpayments — Here you can pay more than the usual monthly mortgage payment and/or make a single lump-sum payment. Any overpayment will immediately reduce the balance of your loan, thereby reducing the amount of our next monthly payment. Borrowers with a repayment mortgage may also choose to reduce the term of their loan. Overpayments can have a significant effect in reducing the amount of interest you pay to your lender over the term of mortgage, saving you hundreds or even thousands of pounds.
Underpayments/Payment Holidays — Provided you have built up a reserve fund of overpayments beforehand, you can pay less than the usual monthly payment, or even make no payment at all for a limited period (for example between 3 and 6 months). This can be very helpful during times of financial difficulty, having children or
when their is extra pressure on the family budget. During periods of underpayment, interest will continue to be charged and this may increase the amount of your loan. Loan drawdown —You can borrow additional monies either by increasing your mortgage (up to an agreed limit) or by borrowing against previous overpayments. This option is often made easy by the lender by the use of a chequebook facility. It can be a quicker process than the traditional further advance.

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How you repay your mortgage depends on your circumstances and how long you will own the property you are buying. There are two basic ways to repay what you have borrowed.

Repayment (Capital & Interest) mortgage
With this method, you make monthly payments to the lender over an agreed number of years (called the mortgage 'term'). Many mortgages last for 25 years but they can be for shorter or longer periods. Your payments gradually pay off the whole amount you have borrowed (called the 'capital' or the 'principal') as well as the interest. Provided you make all the payments agreed with the lender, a repayment mortgage guarantees to repay the whole loan by the end of the term. There is no built in life cover with this method and should you require the mortgage to be repaid on your death, you will need to put in place a separate life assurance plan.

Interest only mortgage
With this method, your monthly payments to the lender only cover the interest on the loan. They do not pay off any of the amount you have borrowed. This is why you usually make separate payments into an investment or savings scheme to build up a lump sum. When the mortgage term ends (or earlier), you use the lump sum to pay off the amount you originally borrowed. It is your responsibility to make sure you have sufficient funds available to repay the loan at the end of its term.

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When taking out a mortgage you'll want to make sure that you, your family and your home are protected.

We have provided a brief explanation of the different types of protection that are available and we can help to make all the arrangements.


Life Cover
Depending on the type of repayment method you select and your own individual circumstances, you may need to take out life cover to ensure your loan is repaid should you die during the mortgage term. This is designed to provide a lump sum payment to pay off the outstanding amount of your mortgage.


Critical Illness Cover
Many people think of taking out protection for their mortgage in case they die, but how would you cope if you suffered a critical illness or disability? Would you be able to maintain your mortgage payments if you were unable to work due to illness?

Most people still believe 'it won't happen to me' but it is important to consider protecting yourself and your family by including this benefit. This will pay out a lump sum on diagnosis of one of the specified critical illnesses, allowing you to repay your mortgage. We will help you determine the type of cover that meets your needs and will give you details of the benefits.


Unemployment Cover
Years ago, it was not unusual for someone to work for the same employer for all of their working life. Today however, most of us have to consider the threat of being made redundant and for most of us, losing your income will mean you will be unable to meet your regular mortgage payments, putting your home at risk. Therefore, it is vitally
important that you protect yourself and your family against the risk of unemployment.

Unemployment Cover will provide you with a regular income for a specific period, usually up to a maximum of one year. The payment covers your mortgage repayments and may cover your home and contents insurance and, if appropriate, any life assurance premiums. After any deferment period, the insurance will cover your mortgage payments from the first day of your unemployment, preventing your mortgage from falling into arrears. The Mortgage Doctor can arrange this type of insurance or answer any questions you have regarding this


Accident and Sickness Cover
Have you considered how you would continue to pay your mortgage and other household bills if you were off work for a substantial amount of time due to illness or accident? An Accident and Sickness Plan will provide you with a regular income during the period you are off work, after the chosen deferred period. This cover is normally restricted to 1 or 2 years. This will help you meet your mortgage costs for the duration of the policy or until you are fit to return to work. The Mortgage Doctor can help you arrange all these kinds of protection, which may be available either as separate plans or as a combined product.


Buildings and Contents Insurance
Your lender will insist that your property has adequate Buildings Insurance whilst your mortgage is outstanding.



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You will want to work out how much you can borrow and The Mortgage Doctor will help you to calculate this. You also need to know about the various costs and charges associated with taking out a mortgage and buying a home. The following is a brief summary of the costs involved.

Buying costs:

Deposit
To obtain a mortgage, you will need to provide a deposit of typically between 10 - 25% of the purchase price of the property. The size of the deposit will effect the amount you need to borrow and the cost of your loan.

Solicitor's fee & Disbursement Charges
The amount your solicitor charges for 'conveyancing' will depend on a number of things including the value of the property. We can help you appoint a conveyancer and update you on the progress of your legal transaction.

Stamp duty
This is a one-off tax payment and is based on the purchase price of your home. Your adviser can give you information on how to calculate this payment. This is paid through your solicitor. Presently charged at:
0% of purchase price up to £175,000
1% £175,001 to £250,000
3% £250,001 to £500,000
4% £500,001 and above

Energy Performance Certificate
You must commission an Energy Performance Certificate within 28 days of putting your property on the market.

Valuation and surveys
Your lender will want to check the condition and marketability of your chosen home. They will use a qualified surveyor to assess these things and provide a current valuation. The fee for this is based on your home's value or its purchase price. This type of survey, known as a valuation report, is arranged for the lenders benefit.
For an extra fee, you can get your own more detailed report, called a Homebuyers report, from the lender's surveyor. For much older properties, or those with defects, a full structural survey may be a good idea. This costs more again, but gives you a detailed report on the structural condition of the property.

Higher Lending Charge
If you borrow a relatively-high percentage of the value of the property (usually over 75%) your lender may want a one-off insurance premium. This varies from lender to lender, some lenders have decided not to enforce this requirement on loans of up to 90%, or even 95% of the property value. Ask your adviser for details. This insurance
does not protect you but insures the lender in the event that your property is repossessed.

Mortgage Broker Fee
Appointing a broker has many benefits. Firstly they will source your desired mortgage deal with the intention of making sure your setting up costs and repayments are kept as low as possible. They will explain the housebuying process and liase with you until final completition. This service should prove financially rewarding as well as elleviating a lot of the problems and pressures.

Lenders Arrangement / Booking Fee
This is normally payable when you choose a specific deal. These fees are either paid up front or sometimes can be added to your mortgage.

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Except in very rare circumstances, home-hunting cannot be done quickly. Even when you have found a home, the financial arrangements and legal side will almost certainly take several weeks. Four to six weeks between agreeing a sale and exchange of contracts is common, with another two weeks before completion, or whatever you agree with the vendor (the seller). Remember too that in England, a verbal agreement with a seller is not usually
legally binding. However, both you and the seller should try to keep to any agreement. But if, for example, you get a bad survey report, you are entitled to try to re-negotiate the price or, pull out altogether. Take the process a step at a time, don't try to rush things, and you should find your purchase runs smoothly.
The following tips will help you make the financial decisions necessary, and we will be happy to provide any assistance you may require.

Steps of the Homebuying Process

1 The Mortgage Doctor will help you work out how much you can borrow, and what price of home you can afford.

2 Contact estate agents, study local papers, look at lots of homes.

3 With the help of the Mortgage Doctor, decide what sort of mortgage you want, and pick the one that
suits you best.

4 When you've found the home you're after, make an offer and agree a price.

5 Appoint a solicitor or conveyancing company who will initiate the conveyancing process.

6 Contact the Mortgage Doctor, tell us about the home you have found and complete your mortgage application and carry out a valuation. We would also recommend that you arrange a Home Buyer's Report which is carried out for your benefit. If it's an older property, you might want to arrange a full structural survey with a surveyor.

7 If the valuation, employers salary and credit checks are satisfactory, an Offer of Advance will arrive from your lender. So will the results of the survey, if you've asked for one. If all is well, take it to your solicitor. He or she will have some documents for you to look through and sign.

8 Wait while your solicitor carries out the relevant searches.

9 The contract is ready. You're nearing the end now. Agree a completion date and sign the contract.

10 Your solicitor and the seller's exchange contracts. You pay the agreed deposit. The house is legally yours! But you can't move in until the day of completion.

11 Completion! The moment the seller's solicitor confirms that they have received the full purchase price, the keys are yours. The seller will have moved out. And you're in! Welcome home.

12 Make sure all protection policies are put in force e.g. life assurance, critical illness, sickness and redundancy and building and contents insurance.

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