Mortgages - A beginners guide
So what exactly is a Mortgage? A mortgage is simply a long term loan provided by a bank/building society, usually over 25 years.
A mortgage is always secured on the vaue of the property. That means if you can't make the repayment the bank can and will re-posess it to recoup their loan and you will be homeless. That it why it is so important to make sure you will be able afford the monthly repayments.
You will usually have to provide a deposit of at least 5% of the asking price of the property. The bigger the deposit you can afford you should be able to get a better interest rate on what you have borrowed so your reypayments could be substantially lower as you are being charged alot less for the loan.
There are several types of mortgage
This is the most common type. Here your monthly payments pay off both a portion of what you borrowed and a portion of the interest. So at the end of 25 years you have paid everything owed and the property is yours.
As the name suggests here your monthly repayments only pay off the interest on the loan but not the loan itself. So this is a much more affordable option. At the end of 25 years you still have to pay off the original loan amount (but of course your property is worth considerably more by then and your circumstances may be very different.)
Here your monthy payments just pay off the interest on the loan. But along side that you also take out an endowment policy which you pay into every month. This cash is saved and invested on your behalf. At the end of 25 years this lump sum accrued is used to pay off the original loan.
Interest rates will vary over the years so you may have pay more or less depending on the current rate. This can be a problem if rates are rising and the repayments become too expensive to afford.
A solution to this is to opt for a fixed rate mortgage. So even if rates go up your repayments stay the same. You can normally fix the rates for several year periods. Fixed rates tend to be slightly more expensive than variable rates but they do offer peace of mind.