Mortgage Explained

By: James Miller

In simple terms, a mortgage is a form of loan where you borrow money in order to buy a property. A typical mortgage will run for a longer period than a normal loan - usually 25 years. And, like a secured loan, if you fail to keep up the repayments, the mortgage provider has the right to repossess your home in order to get back the money they have lent you.

Millions of people have mortgages - and complain about them! - but it does make sound financial sense. Why rent a property and then leave it empty handed when it’s time to move on, when you could be paying the equivalent amount as a mortgage and building up equity that is yours to keep when you sell the property?

Of course, having a mortgage is probably the biggest financial commitment that you’ll ever have to make - a rather daunting fact! And it can give you the feeling of being tied down.

If you are considering taking out a mortgage, you must make sure that you can easily meet the monthly mortgage repayments - as well as other associated costs such as home insurance, council tax, utility bills and any property maintenance charges.

Once you have worked out how much you can comfortably afford, shop around for the right mortgage. Deals can look great on the surface, but read the small print. Make sure that you are aware of any financial penalties should you decide to move your mortgage after a couple of years.

And, if you are offered a discounted or fixed interest rate, make sure that check out what happens when the deal ends and the rate changes - will you still be able to afford to meet your monthly repayments?

Mortgages type

If you are looking for a mortgage, then it can be daunting knowing which one is the right one for you and your circumstances. Here our quick guide to mortgage types will help you make an educated decision when choosing a mortgage.

Fixed rate mortgages
If you are on a tight, inflexible budget, then a fixed rate mortgage could be best for you. With a fixed rate mortgage, the interest rate is set for an agreed period of time. This is typically anywhere between one to five years.

The plus points of this type of mortgage are that you always know how much you will be paying on your mortgage during the set period. And if mortgage interest rates rise, yours won’t.

Conversely - and the downside - if interest rates go down, your mortgage interest rate won’t, so you could end up paying more than you need to.

Capped rate mortgages
With capped rate mortgages, a ceiling limit is set to how high your interest repayments will go. This is great as it means you have the security financially that your repayments will only ever go so high.

However, you do pay for this security, with interest rates on capped rate mortgages being slightly higher than those on a fixed rate mortgage.

Buy to Let mortgages
With more and more people investing in property, Buy to Let mortgages are easier to come by.

With this type of mortgage, you put down a deposit (which varies from lender to lender as to the amount of deposit they require) then use a mortgage to make up the difference.

To keep your mortgage lender happy, you’ll need to be able to show that you will be able to get a gross rent of 125 - 130% each month to cover other incidentals such as letting fees, insurance etc

Remortgages
If you think you can get a better deal on your mortgage, then why not look at remortgaging? It can be a great way to save money on interest repayments by switching to a lender whose product charges less in interest.

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More information : www.mortgage-broker-quotes.co.uk www.repayment-mortgage-in-uk.co.uk www.mortgage-loan-in-uk.co.uk James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.

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