A mortgage is split into two components – the capital and the interest. The capital is the amount you have borrowed, and the interest is the amount the lender charges you for borrowing the money. As well as how much you borrow, how you choose to pay off your mortgage is one of the key decisions you will have to make during this process.
Usually you have three options for paying off your mortgage:
A repayment mortgage
If you choose a repayment mortgage your monthly payment will cover the interest you need to pay, as well as a percentage of the original loan, i.e. the capital. This means that you will reduce the sum of money you have borrowed (the balance) and so the mortgage will be fully repaid when the mortgage term ends (providing you meet your regular monthly payments of course).
An interest-only mortgage
If you choose an interest-only mortgage your monthly payment will only include the interest you need to pay. This means at the end of the mortgage term you will still need to repay the amount you originally borrowed, as well as any additional borrowing you may have taken out. So, you’ll need to think about how you intend to pay this off at the end of the mortgage term, for example you could set up an investment plan, this is called a repayment plan.
With Virgin Money, for residential mortgages you can borrow up to a maximum of 75% of the property value with an interest only mortgage. Residential borrowing above 75% must be on a repayment basis, so you should consider a part and part mortgage (see below).
To take out a Virgin Money residential mortgage on an interest only basis, your total household income must be at least £75,000 (including 100% of additional income such as bonuses, overtime etc.)
We do not currently offer interest only mortgages to first time buyers.
Virgin Money accepts the following repayment vehicles for Residential mortgages:
- Endowment
- Managed Investment Plan
- Personal Pension Plan
- Sale of main property – maximum 65% LTV. Minimum £300,000 equity required. Lending into retirement not allowed if repayment vehicle is sale of property
- Sale of other property – not main residence – to cover 110% of the interest only element (maximum 65% LTV on residential)
- Managed share portfolio (this must cover 110% of the interest only part of your mortgage at the time of application)
You will need to provide evidence of the repayment vehicles and we may, periodically, ask you to provide us with information on the performance of your repayment strategy.
Virgin Money does not accept the following repayment vehicles: inheritance, dividends, regular overpayments, remuneration and intention to convert to repayment at a future date.
If you are capital raising to consolidate debt you cannot do this on an interest only basis.
A part-and-part mortgage
A part and part mortgage is a combination of the above. So your monthly mortgage payment will be split into two parts; one part will work as an interest only mortgage so you only pay the interest on that portion, and the other part works as a repayment mortgage so you will pay the interest plus some of the original loan (i.e. the capital) on that portion. When the mortgage term ends, you will still need to pay off the interest-only part of your loan, however the repayment part will be paid off (again, providing you have met all of your regular monthly payments).
With Virgin Money, you can borrow up to a maximum of 75% of the property value with the interest only part of your mortgage.
To take out part of your Virgin Money mortgage on an interest only basis, your total household income must be at least £75,000 (including 100% of additional income such as bonuses, overtime etc).” The maximum LTV for residential customers taking a part and part mortgage is 85%, of which up to 75% LTV can be on interest only.
We do not currently offer part-and-part mortgages to first time buyers.
It is really important you think carefully about how you want to repay your mortgage as you are responsible for keeping up your monthly payments. Remember, if you are unable to make your agreed payments, you run the risk of your property being repossessed.
If you are capital raising to consolidate debt you cannot do this on an interest only basis.
In order for you to get a mortgage from a lender they will typically require you to provide a deposit. The value of your deposit may influence the mortgage deals that are available to you, and we’ll explain how:
As you progress with your search for a mortgage you will no doubt come across the term ‘loan-to-value’ or LTV. This refers to the amount you are looking to borrow as a percentage of the value of the property, so is essentially determined by the deposit amount you are able to put down. It’s probably easier to understand this using an example:
Your property is valued at £100,000. You have a deposit of £20,000 so need to borrow £80,000 (80% of the property value) so your loan to value is 80%
Property value | Deposit | Mortgage | Loan To Value (LTV) |
---|
£100,000 | £20,000 | £80,000 | 80% |
So, if you can increase your deposit you will lower your LTV. You will find that the lower your LTV, the better the mortgage rate you will be able to get.
But don’t let this worry you, you may not be able to put down a big deposit which is why, like us, some lenders will lend up to 95% of the property value to help get you on the property ladder. That said, you must ensure that you can afford whatever you’re looking to borrow as a mortgage is a big financial commitment. In order to help you to work out what you can afford and what we may lend you, we’ve created some online calculators for you to use before you apply for your mortgage - so please make sure you give them a go, they make things a lot easier!
Loan To Value (LTV) for new build properties
If you’re thinking about purchasing a new build property then please bear in mind our Loan To Value limits:
- For new build flats the maximum Loan To Value we will lend up to is 75%.
- For new build houses with a valuation / purchase price up to and including £500,000 you can borrow up to a maximum LTV of 90%.
- For new build houses with a valuation / purchase price between £500,001 to £1,250,000 you can borrow up to a maximum LTV of 80%.
- For new build houses with a valuation / purchases price above £1,250,001 you can borrow up to a maximum LTV of 75%.
There are two main types of mortgage, a fixed mortgage and a tracker mortgage:
Fixed Mortgages
A fixed rate mortgage pretty much does what it says on the tin – fixes your mortgage payments throughout the term of the deal, which is typically 2, 3 or 5 years, sometimes as long as 10 or 15 years.
A fixed mortgage would work for you if:
- You want to know what your repayments will be every month
- You want the security of knowing your payments will never go up during the fixed rate period
Tracker Mortgages
A tracker mortgage is linked with the Bank of England Base Rate so whatever that does, your mortgage rate also does. For example, if the Base Rate increases by 0.5% your mortgage rate will also increase by 0.5%. If the Base Rate goes down 0.5% then your mortgage will decrease by 0.5%.
A tracker mortgage would work for you if:
- You want to take advantage of reductions in BBR (Bank of England Base Rate)
- You don’t mind the potential change in monthly payments, up or down
All Virgin Money residential mortgages revert to our Standard Variable Rate at the end of the mortgage deal (the mortgage deal is also referred to as the ‘special rate’ period).
Standard Variable Rates
With most mortgages, when the term of your deal comes to an end your rate will refer to the lender’s Standard Variable Rate (SVR). Standard Variable Rates tend to roughly move with the Bank of England Base Rate, however it doesn’t have to and so any lender can change their SVR at their discretion.
There is no right or wrong mortgage to choose. Everyone’s circumstances will be different so for one person a fixed product may be more suitable, and for another a tracker could be better. The key is to understand your own financial commitments both for the short and long term, then weigh up your options to work out which is better for you.