Contractor Mortgages: Repayments

Obtaining a mortgage is one thing, but with the uncertainty which can go along with the contracting work life, having low repayment rates can be vital to ensuring your finances keep ticking over even in the darkest of times.

There are two dominant ways of repaying a mortgage: repayments and interest-only:

  1. Repayment mortgages are the typical choice which consist of repayment of the original sum borrowed from the lender plus interest, allowing you to start paying back the debt straight away but with higher repayment rates than the alternative.
  2. Interest-only mortgages consist solely of the interest which allows for lower repayment rates but the original sum borrowed will eventually have to be repaid in one big repayment. To do this, most will make investments expecting the returns to pay off the debt, but there is no guarantee that the invested returns will amount to the debt when it requires repaying.

When calculating your repayments rate (for repayments mortgages), your lender will be looking at the level of risk they are taking on by lending you money. The higher the risk, the higher the repayments will be (so they can get as much money back as quickly as possible). It is therefore imperative that you know what you can reasonably afford. This may seem like basic financial planning but you’d be surprised how many people do not consider this before applying for a mortgage and are then met with repayments that they cannot keep up with, which can eventually result in repossession of your home. You will also need to consider increasing SVRs (Standard Variable Rates or interest rates) so don’t push your limits at the start if you are on one of these mortgages. A seemingly small rise in percentage can translate to a fairly substantial monetary increase every month.

The higher the deposit you can put down, the better the repayments will be as you will be reducing the risk to the lender, so try to put down at least 10% but the higher the better. Your credit rating will also have an effect as will the time period over which you will make the repayments.

It is ideal to also ensure you have the option to pay off lump sums of your mortgage during its term. This can help you lower your repayments for when you are not in a spot of such good wealth.

Consult a financial advisor for advice on affordable repayment rates and schedules for your individual needs.

To work out your monthly repayments, use Freelancer Financials Mortgage Repayment Calculator.

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