Residential Mortgage

Learn all the essentials of residential mortgages in our detailed guide. We are here to offer you expert advice and guidance on any issues or doubts you may have. Contact us and let us know how we can support you in your journey.

This guide provides you with all the information you need to know about residential mortgage types, rates, procedures, and more. Whether you are a first-time or an experienced buyer, this guide will assist you in the residential mortgage process.

We will examine the features of residential mortgages so you can make an informed decision for your purchase.

What is a Residential Mortgage?

A residential mortgage is a loan for a property you live in. If you don’t pay, your lender can sell the property to recover losses.

Residential mortgages depend on property value, credit score, and income. You can choose a fixed or variable rate. A fixed rate means same monthly payments, while a variable rate means changing interest rate and payments.

You repay residential mortgages in monthly instalments over 5-40 years. Most people get a ‘capital and interest’ or ‘repayment’ mortgage. This means you pay interest and debt every month until you clear the mortgage.

If you have high income or big deposit, you can get an interest-only mortgage with lower payments. You would need to pay the whole debt at the end and prove a solid repayment plan to the lender.

What is Second Residential Mortgage?

A second residential mortgage is an extra loan on the same property as the first residential mortgage. You can use it for various purposes after buying the property.

A second residential mortgage is from another lender and is called a second charge. This means the first lender gets paid first if you default on payments.

A second charge may have higher rates and fees than the first residential mortgage because of more risk.

Sometimes you can borrow more from the first lender. This is a further advance.

A Connect adviser can help you with any residential mortgage needs. Talk to our mortgage advisors for more information. They can help you find the best residential mortgage for you.

The Benefits of Residential Mortgages

Residential mortgages have many benefits. They help you buy your home without paying a lot of money at once and you can gain equity if property prices rise.

Residential mortgages have many benefits and we’ve listed some of the key benefits below:

Low rates: They usually have lower rates than other loans, such as credit cards or business loans, making them cheaper.

Flexible terms: Residential mortgage lenders often offer flexible terms, such as overpayments or fixed or variable rate options.

Builds Equity: If you pay this mortgage with capital and interest, some of your payments reduce the loan balance.

Stability: They can give you financial stability if you choose a fixed rate, as your rate and payments will stay the same for that period.

If you want this mortgage, our mortgage advisors can help. Contact us today to learn more about residential mortgages and how they can help you. We are happy to help!

How Does a Residential Mortgage Work?

To buy a property to live in, such as a house, flat, bungalow, or other residential property, you can take out a residential mortgage. These are loans from banks and lenders who allow you to borrow a certain amount to pay for the property. To repay the loan, you’ll make regular payments usually over a 5 to 40-year period. The property is used as security for this mortgage.

Borrowers also need to pay a deposit to get their loan. This can be as low as 5% of the price of the property. The larger your deposit, the lower the risk for lenders, which in turn will lower the interest rate. Lenders check credit and income to see if borrowers can repay this mortgage.

How Does Interest on Residential Mortgages Work?

Interest is what you pay to the lender for borrowing money on this mortgage. It is based on an Annual Percentage Rate (APR) that includes interest rates and fees.

Lenders set interest rates for your mortgage depending on your credit score, loan amount, term length, and other factors. The lower the risk to the lender, the lower the rate. You can still get a good rate even with some credit issues like late payments or CCJs.

Residential mortgages can have variable or fixed rates, with variable rates changing with the market. Interest is paid monthly and spread over the loan term. It is calculated on the loan balance and added to your monthly payment.

Residential and Commercial Mortgage

You can buy a home, flat, or other residential property to live in with residential mortgages. You usually pay it back by retirement, based on your income. Some special residential mortgages let you have it after retirement. Residential mortgage lenders need you to pay a deposit to lower risk. The deposit can be as low as 5%, but a bigger deposit means a lower rate.

Commercial mortgages are for buying business or commercial properties like offices, warehouses, and shops. They have shorter terms (5-20 years) and higher rates than residential mortgages. Commercial mortgage lenders also need you to have a bigger deposit and pay more down payment than residential mortgage lenders to lower risk (25% – 40%). Commercial mortgages may also have more fees and costs. Both residential and commercial mortgages offer variable or fixed rates to pick from.

Buy to Let vs Residential Mortgages

Comparing buy to let and residential mortgages

Buy to Let

Landlords use buy-to-let mortgages to buy properties to rent out.

They can have longer terms, even into retirement.

Interest rates are higher.

Borrowers need to pay more down payment (25% – 30%) to lower risk.

Fees and costs may be higher too.

Residential Mortgages

You use it to buy a home, flat, or other residential property to live in.
You usually pay it back by retirement. (Some special mortgages like RIO or Equity Release are exceptions)
Interest rates are lower than commercial or buy to let mortgages.
Borrowers need to pay a deposit to lower risk but can be as low as 5%.
Fees and costs may also apply

Eligibility

You need to meet some criteria to get this mortgage, such as:

Being 18 or older
Buying a property in England, Wales, or Scotland
Having enough income to pay the mortgage and other expenses

We can help you get this mortgage even if you have complex needs. For example, we can help if you have bad credit, been rejected by other lenders, been self-employed for a year, or work on contracts.

Change a Residential Mortgage to a Buy to Let Mortgage

It may be possible switch from a residential mortgage to a buy-to-let mortgage if you want to move out and let the property.

In this instance, you would need a ‘Consumer buy-to-let’ mortgage. You can learn more about buy-to-let mortgages on our website or by speaking with one of our advisors. Our advisers can offer tailored advice on your best options.

Final Thought

Getting the right mortgage is a big decision that needs careful consideration. It’s important to compare different rates and terms that suit your needs. Our mortgage advisors can help you find the best loan. Using a residential mortgage calculator to see your monthly payments and total costs is a great place to start. Please see our mortgage calculator.

FAQ (Frequently Asked Questions)

What is interest only residential mortgage?

With an interest-only residential mortgage, you only pay the interest portion of your loan every month and not the principal. This gives you more leeway in choosing how much you can afford and how much you want to pay monthly. However, this option is typically reserved for applicants who have high incomes and large down payments.

What is consent to let on residential mortgage?

Consent to Let lets you rent your mortgage property for a while with the lender’s approval until you can switch to a BTL mortgage. This gives you time and flexibility to find other housing options. You must get consent or you will break the lender’s rules. You can also talk to an adviser about changing your residential mortgage to a BTL mortgage.

Can I change my buy to let mortgage to residential?

You need a full affordability and underwriting assessment from the lender to change your buy-to-let mortgage to a residential mortgage. This is because the lender checked your affordability based on rental income, not your own payments. If you live in a property with a buy-to-let mortgage, you will break the lender’s rules. This can hurt your chances of getting mortgages in the future. A good mortgage adviser can help you make the right changes.

Does having a buy to let mortgage affect getting a residential mortgage?

A buy to let mortgage may impact your ability to get a residential mortgage, as lenders will look at the extra debt and any rental income you have with tax returns. You should talk to an independent financial adviser or your lender before deciding.