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Few people have the privilege of buying a house outright in cash, leaving the structured repayment approach of mortgage loans the more manageable solution. If you're new to the process, you may have wondered 'How much do I end up paying on a mortgage?'. The true amount you pay back will vary depending on your circumstances, so there's no one-size-fits-all answer. However, it helps to know what costs go into your mortgage and buying a house, as it doesn't just involve your monthly repayments but your deposit and the period over which you pay back. In this guide, we explore the components of a mortgage, an example of what you may expect to end up paying and share how to find the most suitable mortgage product for you.
A mortgage is a loan designed to help you buy a house or other property. The basic mortgage structure requires most people to put down a deposit for the property they wish to purchase, which is usually a percentage of the total cost of the property.
The mortgage lender pays for the property, and you enter into a contract with the lender where you will be paying monthly instalments to repay the loan over an agreed term for the house purchase. The house acts as security for the loan, with the mortgage lender handing over the deeds to the house once you clear the instalments (and therefore the mortgage loan) in full.find me a mortgage
There's a lot more that goes into a mortgage than just the house price and the monthly instalments you pay. Some of the costs surrounding a mortgage include:
The larger the deposit you can put down, the less the amount the lender has to loan to you meaning the less you have to pay back. This may in turn lower the interest rate. It also increases confidence in your repayment ability, which helps to reassure mortgage companies.
On average, most people opt for a 25-year pay-off period, but in theory you can pay back over any period, including 30 and 35-year terms. Of course, the longer you have to repay the loan, the more you'll pay back overall.
For instance, a mortgage on a £200,000 home is going to incur more interest if you pay it back over 25 years than over 20 years, but your monthly repayments will be lower as the cost is spread over a longer timeframe.
The interest rate is what the mortgage lender charges for providing the principal (loan initial capital) amount. A mortgage with a higher rate may mean you'll pay more back overall than one with a lower rate. Some things which affect the interest you pay on a mortgage include the following:
While not strictly part of your mortgage, you may pay additional fees for some mortgage products or when using certain services. These could include:
When you take out a mortgage, there's a good chance your mortgage terms will require you to take out buildings insurance. Other recommended insurance costs of having a mortgage include life insurance (which can ensure your repayments are made in the event of death or critical illness) and content insurance (which can protect your belongings).
As we've mentioned, your costs will be individual to you and your circumstances, but here are some examples to show how repayments are worked out:
House price: £200,000
Deposit: £20,000 (10%)
Loan amount: £180,000 (90% LTV)
Mortgage length: 25 years
Interest rate: 6%
Monthly repayments: £1,160
Total cost of mortgage repayments: £347,923
Total paid in interest: £167,923
House price: £250,000
Deposit: £50,000 (20%)
Loan amount: £200,000 (80% LTV)
Mortgage length: 20 years
Interest rate: 4.5%
Monthly repayments: £1,265
Total cost of mortgage repayments: £303,672
Total paid in interest: £103,672
While you may not be in control of certain variables in a mortgage calculation, there are a few tips to help you secure a more favourable interest rate:
Mortgage loans vary, depending on your situation and your chosen property. While mortgages are the most manageable option to own a home, they don't have to be a crushing financial burden. Get in touch today and let us help you pick the most suitable one.
As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.Contact Us