If you are planning on buying a home for yourself, then you need a residential mortgage. What is a residential mortgage loan, exactly? It’s simply a mortgage that allows people to purchase residential properties for their own personal use, either as their primary residence or as a secondary one.

Residential mortgages cannot help you buy a rental property or a commercial property. Residential mortgages tend to have some of the lowest interest rates of all the available mortgage options since you aren’t expected to earn an income from them.

To help you understand if you need a residential mortgage and help you know just what type of residential mortgage you can get, use this guide to get started.

What is a residential mortgage?

A residential mortgage, in the simplest terms, is any mortgage used to buy a residential property. Residential mortgages cannot be used to purchase rental properties or commercial buildings. The main purpose of the building is to live in it, even if it’s only for a few weeks as a summer home.

Types of residential mortgages

There are many different kinds of residential mortgages that you can choose from. If you aren’t sure which type of mortgage is right for you, then either read through more of our guides or get in touch directly with our experts, who will be more than happy to explain each loan type and their terms and conditions.

In general, you can get one of six different residential mortgages.

1.    Fixed-Term

The most common type of residential mortgage is the fixed-term mortgage. This means that you agree to pay a certain interest rate for a fixed period. Generally, fixed-term interest rates are lower than the standard variable rate when you lock them in. That being said, the standard variable rate can drop while you are still in the fixed-term contract, meaning you end up paying more.

If you think that the interest rates are going to drop in the future, you may still be better off with a fixed-term loan. Instead of a five-year loan, you may prefer a two-year loan since you can remortgage and get another rate sooner.

2.    Variable

Once your fixed-term rate ends, you’ll be switched to a variable interest rate. If you do nothing, you will continue to pay the standard variable rate until your principal (the house cost) is paid off.

You can get off the variable rate by remortgaging with a new lender or moving your mortgage product to a new fixed-term agreement with your existing one.

3.    Interest-only

If you need more funds at the start of your loan period, then you might be interested in an interest-only mortgage. This is a short-term agreement where you only pay the interest, instead of the interest and the principal, for a short period.

You can usually switch to this at any time for a period of six months, thanks to the Mortgage Charter Help Scheme, which is designed to help homeowners manage their finances during stressful periods.

For example, if you lost your job during a fixed term period, you can switch temporarily to an interest-only mortgage. Then, when you get a new job, you can switch back to your standard loan agreement.

4.    High-value loan

If the property you want to buy is over £1m, then you’ll likely need a high-value loan mortgage instead. There are stricter financial and property requirements to get a high-value loan. For example, you will often have to pay a 20 to 40% deposit to secure your property.

5.    First-time buyer mortgages

If you are a first-time buyer, then there are several government-backed schemes designed to help you climb the property ladder. Going to a first-time buyer mortgage specialist can help you find lenders that understand the scheme you are using and can help you put together a stronger application so you’re more likely to secure that first home.

6.    Shared ownership mortgages

One of those buyer schemes is the shared ownership mortgage. This is a slightly different type of mortgage in that you will pay off a mortgage for only a portion of the property and pay rent on the rest. Staircasing is also a consideration, which makes shared ownership mortgages slightly different than standard ones.

Frequently asked questions

Can I have more than one residential mortgage?

You may wonder if you can have two mortgages at once or even more. The answer is yes, but you will need to pass more stringent affordability checks.

Can I rent out my property with a residential mortgage?

If you intend to rent out your property to a tenant, you will need to switch to a buy-to-let mortgage or HMO mortgage.

What’s the difference between a residential and commercial mortgage?

Residential mortgages help homeowners buy residential properties, and commercial mortgages help business owners purchase commercial properties. Commercial properties include shops, warehouses, distribution centres, and so on. Like buy-to-let mortgages, commercial properties typically cost more than residential mortgages.

How do I get a residential mortgage?

If you aren’t familiar with the process of getting a residential mortgage, then read through our how to get a mortgage for first-time buyers guide. We walk you through everything you need to know about getting your first mortgage, from the timeline to expect, what lenders look for, and how to make an application.

You can also be guided through the process by working with a mortgage broker and advisor. With your own advisor by your side, you will have bespoke recommendations and step-by-step instructions that are specifically catered to your individual situation.

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