A mortgage is a loan which is secured against your home. When you take out a mortgage, you enter into an agreement to pay the loan back, with interest, over a period of time agreed with your lender.
How does mortgage interest work?
Generally speaking, the lower the loan-to-value (LTV) ratio of your mortgage, the lower your interest rate is likely to be. This is because you are borrowing a smaller amount of money overall.
There are various interest rate options available, including:
Fixed rate mortgage - your interest payments are fixed for a set period of time (usually several years) after which you will be moved on to another rate
Standard variable rate mortgage - your interest will vary with your lender's mortgage rate
Tracker mortgage - your interest rate will move up or down by tracking an external rate, such as the such as the Bank of England Base Rate
What is the Loan-To-Value ratio (LTV)?
The loan to value ratio of a mortgage indicates how much of your property you own outright (covered by your deposit, and commonly known as equity) and the amount you are borrowing (covered by your mortgage), expressed as a percentage. To compare top mortgage rates and find the best low interest mortgage deals for you, use the mortgage calculator to search over 5,000 mortgage deals based on your personal circumstances.
How to get a low interest mortgage
Mortgage lenders generally offer better rates for people who have a significant deposit or equity in their current home to put towards the purchase value of a new property. Generally speaking, a higher deposit means that you can get a lower LTV mortgage and a better deal on interest rates, because you are borrowing less money and therefore present a lower risk to the lender. However, there are certain criteria that you will need to fulfill in order for your application to be successful. If you apply for low interest mortgage, lenders will consider criteria such as:
Your deposit – To get the best interest rates, you will normally need to have a substantial deposit or equity in your current property.
Your earnings - Do you earn enough to borrow the amount you want?
The stability of your income - Are you self-employed or new in a job?
Your outstanding debts - How much debt do you have?
Your credit rating - Have you ever missed a mortgage payment or other repayment in the past? Do you have any County Court Judgments (CCJs) against you? Have you even been bankrupt?