A residential mortgage (often simply called a mortgage) is the most common type of mortgage and it is a long-term loan to help an individual (or several) to buy a home. The loan is guaranteed against the home so that, if payments aren’t kept up with, the mortgage provider can take back the property to cover the unpaid loan.
Residential mortgages almost always require a cash deposit, usually 10-30% of the value of the property being purchased, although some mortgage providers now offer 5% mortgages to first-time buyers to help young people get on the property ladder. Once the mortgage has been awarded, this means that the buyer has to pay off the remaining percentage over the agreed term of the mortgage, usually around 25 years – although the term can vary from just a few years to a much longer time such as 30 or 40 years.
Residential mortgages have to be repaid with interest on the borrowed sum. This means that the bank or mortgage provider charge a percentage of the borrowed amount which you have to pay back in addition to the capital you initially borrowed.
Most residential mortgages are provided on a variable interest rate. This means that the interest can change over the time you repay the mortgage. However, mortgage providers often try not to raise interest rates too high as buyers can always choose to re-mortgage and benefit from another provider’s lower interest rates.
You are allowed to have as many residential mortgages as you want, as long as you fulfil the criteria required by the mortgage advisor. Some of these criteria may include a minimum income or a minimum or maximum age. Additional residential mortgages may be charged at higher interest rates, though, so be sure to check to get the best rates that you can. Alternatively, if you’re purchasing a second property to rent out, you may like to consider a buy-to-let mortgage.
As the names would suggest, the type of mortgage you would need depends on how you are planning on using the property. If you are buying a property as a rental then you would need a buy-to-let mortgage whereas if you are planning to live in the property, a residential mortgage would be the right choice.
Mortgage Risk Warnings