Can someone tell me about the way mortgage deposits work?

snowkit

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Let's say you have £10,000 in your bank and you want to borrow £50,000 and put for instance a 10% deposit down. Could you do that using that same £10,000 So that 10% of £50,000 = £5,000 for deposit and you subtract that from your £10,000 which leaves with the bank £5,000 and £5,000 down for deposit?
 
If the property is costing you (say) £60,000 you can borrow £54,000 from the bank or building society and provide the deposit of £6,000 from your own resources - ie the money that you have saved up
 
If you wanted to buy a £10k car and needed a loan to pay for it along with a 10% deposit, you'd take a £1k out of your bank account, hand it over to the seller and pay for the rest with the loan.

A mortgage is no different really. The only difference is who you pay the money to. With a mortgage you're dealing with who will lend you the money rather than the person selling the house so you give your deposit money to whoever is giving you the mortgage and then they loan you the rest to pay off over the years.
 
I’m not quite sure what you’re getting at? If you put £5, 000 down then you are borrowing £45, 000?

You are better off speaking to an independent financial advisor to find out what is current in terms of lending. When I bought my house 2 years ago, there were no 100% mortgages and the bigger the deposit, the better the deal you got.

:)
 
It's pretty easy :)

House Price = P
Available Deposit = D
Amount you need to borrow B = P - D
The larger the relative deposit (D/B) the better the deal you can get.
A D tends to zero, so do the number of deals available.
 
Let's say you have £10,000 in your bank and you want to borrow £50,000 and put for instance a 10% deposit down. Could you do that using that same £10,000 So that 10% of £50,000 = £5,000 for deposit and you subtract that from your £10,000 which leaves with the bank £5,000 and £5,000 down for deposit?

Let's say you wanted a decent rate you'd be putting the lot down as a deposit all 20% :)
 
Let's say you have £10,000 in your bank and you want to borrow £50,000 and put for instance a 10% deposit down. Could you do that using that same £10,000 So that 10% of £50,000 = £5,000 for deposit and you subtract that from your £10,000 which leaves with the bank £5,000 and £5,000 down for deposit?
Your question seem to be confusing the amount you borrow with the price of the house.

If the price is £50,000, then you put down a £5,000 deposit from your bank account, and borrow the rest, £45,000. So you end up with £5,000 in the bank and a £45,000 mortgage on a £50,000 house.

But if you borrow £50,000, then with a 10% deposit that means you'd be buying a house costing about £55,500. So you'd need a £5,550 deposit and you'd end up with £4,450 in the bank and a £49,950 mortgage on a £55,500 house.

I hope that make sense.
 
Many thanks for all the replies

Perhaps I may not need a mortgage but just a standard loan. As I want to borrow money for a new business that I want to setup. I just thought you can use a house mortgage as it's the same thing as any loan. As I am looking to borrow the £50,000 I thought it's usually the bank gives you 5x what you have in your account. But only require the 10% to deposit. So in this case £10,000 in the account but £5,000 as the deposit will give me £50,000. Is this correct?

The way I view this is, for example let's say I earn £10,000 in my current job. I don't earn this but just for example. I earn £10,000 and I have this in my account right now. Will the bank give me £50,000 to borrow and then can I put 10% of £50,000 down which would be £5,000. While holding the other £5,000 that I earn from my job in the account for the mortgage?
 
This is for a business? That's a bit different - have you tried looking at business starter loans?

For how much you can borrow, the calculation is typically x * your gross salary - where x can be anything from 2.5 - 5 - more likely to be towards the lower end. The amount you have in your account is not really relevant to the calculation of how much you >can< borrow, but reduces the amount you >need< to borrow if it goes towards the total you need.
 
This is for a business? That's a bit different - have you tried looking at business starter loans?

For how much you can borrow, the calculation is typically x * your gross salary - where x can be anything from 2.5 - 5 - more likely to be towards the lower end. The amount you have in your account is not really relevant to the calculation of how much you >can< borrow, but reduces the amount you >need< to borrow if it goes towards the total you need.

Many thanks for your reply

I just looked into these business starter loans. They look interesting.

What I am really after is if there is a type of loan where I could put £10,000 in my account to borrow £50,000 put down a £5,000 deposit. Borrow for 3 years on a fixed interest only loan at say 5% or less. Is there any such thing?
 
This is for a business? That's a bit different - have you tried looking at business starter loans?

For how much you can borrow, the calculation is typically x * your gross salary - where x can be anything from 2.5 - 5 - more likely to be towards the lower end. The amount you have in your account is not really relevant to the calculation of how much you >can< borrow, but reduces the amount you >need< to borrow if it goes towards the total you need.
Yes, and you must be very careful about mortgaging your house to raise money for a business. You are quite wrong when you say it's "the same thing as any loan". Many people do it, and it's often a perfectly reasonable thing to do, but you must remember that if things go pear-shaped then you will lose your house, because the bank will sell it off to pay the loan. If you can, much better to get a business loan. The very worst that can happen there is that you will go bankrupt, and you would not lose your home.

Before you start on all this, you must get proper financial advice, and not from internet forums.
 
What you have in the bank is fairly irrelevant. You can't just leverage money with itself (unless you're Enron, obv).

Two options

1. You borrow money secured against a house (a mortgage). The amount you can borrow depends on the equity you have in your house. Say your house is worth 200k, you currently have a 100k mortgage, so you have 100k of equity. Typically you can borrow up to 75% of value, so 150k total borrowings, minus the 100k you already have, gives you 50k available.

2. You get a normal loan, which will either be secured (lower interest rate, but the bank takes something off you if you can't pay), or unsecured. The amount you can borrow here depends on the business you're trying to invest in and your personal credit history. Having some money on deposit might help a bit here, but the sensible thing will be to use that money first anyway and take it off the total you need to borrow - it'll make the loan cheaper.
 
What I am really after is if there is a type of loan where I could put £10,000 in my account to borrow £50,000 put down a £5,000 deposit. Borrow for 3 years on a fixed interest only loan at say 5% or less. Is there any such thing?


If you want an unsecured loan you can get one but it will be very expensive. You don't need collateral for that (e.g. a house) but you will probably need to show how you are going to pay it back.

If you want a secured loan (mortgage) then as I said there is no 'put 10K in an account' to improve how much you can borrow - it is simply a function of your income (as that will prove that you can pay it back) and the percentage of the collateral's value that you want to borrow (as that determines how much risk the lender is taking)

Does paying it back depend on the business being a success?
 
Many thanks for your reply

I just looked into these business starter loans. They look interesting.

What I am really after is if there is a type of loan where I could put £10,000 in my account to borrow £50,000 put down a £5,000 deposit. Borrow for 3 years on a fixed interest only loan at say 5% or less. Is there any such thing?
See my note above. You might get such a loan, but as I say, get proper advice.
 
Yes it is straight forward as people have described.

But I have always thought 'deposit' is an odd word to use. Many think of a 'deposit' as a security which you get back at the end. What you pay for mortgage is more an initial or down payment.

Cheers,

Nigel
 
Many thanks for everyone's reply

You have given me lots of useful information that I am looking into and researching. I just am not understanding one thing. I thought it's not a down payment you put down for a loan but a deposit. For instance with mortgages you put a deposit down and get it back at the end of your term, is that correct?
 
No, it's not correct. A deposit comes off your total borrowing, you don't get it back at the end.
 
No, it's not correct. A deposit comes off your total borrowing, you don't get it back at the end.

ah thanks for clearing this up

Do you know if I can get an interest free loan, I just read that banks are phasing out interest only mortgages. But found lots of companies online are offering interest only loans?

I am looking for a fixed rate loan for the length of the loan, also interest only for the length of the loan. I need to borrow up to £60,000 and looking for borrowing for 3 years. Is it possible to get such a loan?
 
ah thanks for clearing this up

Do you know if I can get an interest free loan, I just read that banks are phasing out interest only mortgages. But found lots of companies online are offering interest only loans?

I am looking for a fixed rate loan for the length of the loan, also interest only for the length of the loan. I need to borrow up to £60,000 and looking for borrowing for 3 years. Is it possible to get such a loan?

You only get those from the bank of Mum & Dad unfortunately ;)

I think interest only loans are being targeted by the FSA as they feel that the general public is not capable of making their own decisions on anything, that's why the banks are getting more wary of them. Personally, if you're starting a company / business why not go and have a chat with a couple of local bank's business teams? It'll be an hour out of your day and you don't have to do what they say, but they will have an idea of what's in the market and what's possible.
 
An interest free loan? No chance I'm afraid.

Interest only means you only pay the interest over the period of borrowing but you're not actually paying back any of the capital (the amount borrowed). In your example, you borrow £60,000 over 3 years. Over those 3 years you'll be paying back the interest on your loan then at the end you'd still be owing the full £60,000.

Whether anybody will do a £60,000 loan is a different matter. A bank will probably want to see business plans, projected costs, profits, etc.
 
Many thanks for your reply

I made a typo, I didn't mean interest free. I meant to say interest only loan. These are possible right?

I read that banks are phasing out these interest only mortgages, but are the interest only loans still available?

An interest free loan? No chance I'm afraid.

Interest only means you only pay the interest over the period of borrowing but you're not actually paying back any of the capital (the amount borrowed). In your example, you borrow £60,000 over 3 years. Over those 3 years you'll be paying back the interest on your loan then at the end you'd still be owing the full £60,000.

Whether anybody will do a £60,000 loan is a different matter. A bank will probably want to see business plans, projected costs, profits, etc.

Thanks for your reply virtual22

I do plan to speak with a bank soon, but I am just doing some research for now myself.
 
I meant to say interest only loan. These are possible right?
Interest only might be possible, but then you still have to save up the £60,000 to pay back as well. Had a quick look at some figures earlier and you're going to be looking at around £2,000 a month to clear it off in 3 years.
 
Interest only might be possible, but then you still have to save up the £60,000 to pay back as well. Had a quick look at some figures earlier and you're going to be looking at around £2,000 a month to clear it off in 3 years.

wait a minute, an interest only is as the name suggests I only pay the interest each month. Of course my business would have to make more than £2,000 per month or more so I can pay the amount I borrowed off. So that would mean at the end of the 3 years I pay back the £60,000 in one payment. That's how interest only works right?
 

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