A mortgage is a type of loan you get from a bank or building society to help buy a property. The size of the mortgage you need for a property will depend on how much you’ve saved up to put towards a deposit and the amount you still need to reach the purchase price.

The amount of mortgage you then take out will be a percentage of the purchase price. This is called a loan-to-value ratio, or LTV.

A loan-to-value (LTV) ratio is used to indicate how much of your new property is paid for by your mortgage (in percentage). You can calculate this by subtracting your deposit as a percentage from the house’s total price value.

For instance, if you’re purchasing a property that is valued at £200,000 and you’ve already paid a deposit of £50,000, you will be left with a 75% LTV. This is because your deposit is worth one-fourth (25%) of the house’s total price.

Generally, a larger LTV will come with higher interest rates as there’s more risk to the lender. Instead, paying a bigger deposit or buying a cheaper property in relation to your finances, is likely to get you a more favourable mortgage rate.

You can apply for a mortgage through a bank or building society. You’ll need a few documents on hand to start the process, including proof of identity, utility bills, and bank statements.

When you apply, you’ll be asked a series of questions about yourself and your finances. This is so the lender can calculate what kind of mortgage you’ll be able to afford. Your potential lender will also run checks to determine your financial status and credit history. If your application is accepted, you’ll be sent a mortgage offer.

It’s easier and quicker to find the best mortgage for you when you compare quotes with MoneySuperMarket. Just tell us about yourself and the home you want to purchase. You can compare deals by the initial interest rate, APR, and the fees included in the overall mortgage term.

The size of the mortgage you can afford is based on your income and any financial commitments you already have.

You can find out how much you could borrow with our mortgage calculator. Simply enter your annual income and we’ll do the rest.

Whether a lender will let you borrow this amount will also depend on your credit history, the size of your cash deposit, and the length of the mortgage term.

This is the rate of interest charged on a mortgage. Rates are determined by the lender in most cases. They can be fixed, where they remain the same for the term of the mortgage, or variable, where they fluctuate with a benchmark interest rate.

Before you compare mortgage rates, it’s important to understand the different types and how they work.

Mortgage term: most people opt for a 25-year term for their first mortgage, but you can choose a longer or shorter period. If you opt for a longer term, your repayments will be lower. However, it will take you longer to pay off the debt and you’ll pay more interest overall. The shorter the term, the sooner you’ll be mortgage free, but you should make sure you can meet the repayments each month.

Deal length: given that many mortgage deals have an early repayment charge (ERC) if you want to end the mortgage deal early, it’s important to think about how long you’re happy to tie yourself in for.

For example, if you think you might move in the next few years, opting for a two-year deal rather than a five-year deal might be preferable. It can cost thousands of pounds to get out of a mortgage early, as the penalty is usually a percentage of the outstanding mortgage. So, if your mortgage if £100,000 and the ERC is 2%, you’ll have to pay £2,000 to get out of the deal.

Repayment or interest-only: you can take your mortgage out on a repayment or interest-only basis. With a repayment mortgage, your monthly payments are calculated, so you’re paying off some of the capital as well as the interest. This way, you can be confident you’ll have repaid the entire loan by the end of the term.

In contrast, monthly payments on an interest-only mortgage cover only the interest. This means you’ll have the original loan to pay in full at the end of the term. The idea is that you’ll have a repayment plan in place, such as an investment or cash ISA. Therefore, you’ll build up a significant lump sum to clear your mortgage loan in full by the time your mortgage ends.

This is a specific type of mortgage where another homeowner – generally a family member or close friend – agrees to cover for your mortgage expenses should you not be able to yourself. Guarantor mortgages are particularly useful in the case of first-time buyers, as they’re likely to have a limited deposit and a poor credit history.

That said, these mortgages come with a huge dose of financial responsibility for both you and your guarantor. If you’re both unable to meet your mortgage repayments, you could put your homes at risk.

Therefore, it’s important to ensure that you can afford this type of solution. Bear in mind that guarantor mortgages usually don’t offer the best mortgage rates on the market.

A mortgage in principle or an agreement in principle is confirmation of how much a bank or building society is prepared to lend to you based on the information you’ve provided. This can help show that you’re ready to buy when it comes to making an offer on a property.

However, it’s important to remember that a mortgage in principle is not a guarantee that an offer will be made. A lender can still refuse or reduce the amount at the point you come to make a full mortgage application, as this will assess your full credit history and financial situation at the time of application.

It’s hard to definitively say who has the best mortgage rate, as that depends on what you’re looking for.

Banks and building societies change their mortgage rates quite frequently, so it’s always best to shop around when looking for the best deals. While low interest rates are attractive, they are not the only consideration. You should also factor in the type of deal you want, such as whether a fixed-rate or variable-rate mortgage will suit you best.

What’s more, think about the fees attached to the deal, plus how long you want to be tied into the loan.

APRC stands for annual percentage rate of change, and it’s expressed as a percentage. It shows you the total cost of your mortgage, including any fees or variable interest rates, over the entire term of the loan.

APRC is often used to advertise mortgages, as it helps give a more realistic idea of how much the mortgage will cost overall. It can come in handy when you’re comparing mortgages, as you can see how different rates and fees can impact the cost of your mortgage over its lifetime.

Our page APRC Explained goes into more detail.

Taking out a mortgage comes with an array of additional expenses. Here are a few you can expect to pay:

• Arrangement fee – this is the standard fee you’ll have the pay lender to set up the mortgage

• Booking fee – this ‘books’ your loan while you wait for your application to be processed and accepted

• Valuation fee – this covers for checks to the property to ensure that it’s worth the sum of money you’re hoping to borrow

• Conveyancing fees – this fee covers the legal costs associated with purchasing your new house

• Broker fee – if you seek help from a mortgage advisor, some will ask for a payment for their service. The broker or advice fee is what you’d generally pay for mortgage advice

Mortgage lenders generally offer around 4.5x your annual salary for a mortgage. So, for example, if you earn £30,000 per year, you should be able to borrow £135,000, 4.5x your wages. Some lenders may offer deals based on 5x your salary.

If you are a couple buying a home, or you are buying with someone else, you can combine your salaries so you can borrow more money. That means that if you earn a combined £60,000, you should be able to borrow £270,000.

If you have a larger deposit, you may not need to borrow the maximum amount, meaning you can get lower mortgage rates. Remember that lenders carry out stringent checks to ensure you earn as much as you say you do. If you are self-employed, you will need to provide extensive evidence of your salary over the past two or three years.

Fixing for two or five years is a personal choice. Five year deals now tend to come with a marginally lower interest rate compared with two year deals, and have the advantage of offering security, as well as the knowledge of how much you must pay every month. However, they also attract higher exit fees if you choose to quit your deal early.

Two-year fixes are good for those who want short term stability, but want flexibility in case interest rates fall. While rates have stabilised, they remain at their highest since the 2008 financial crisis and are unlikely to fall significantly in the medium term. That means a five-year fixed mortgage may be preferable.

If you’re unsure, seek the advice of a mortgage broker or advisor.

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