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Mortgages Explained
What is a mortgage?
A mortgage is a loan you apply for from a lender which gives you sufficient funds to buy a home and for which you normally have to pay at least 10% of the price of the property (the deposit) as a condition.
Your deposit can be as low as 5% if you buy your property in conjunction with one of the Government's Help to Buy schemes.
You have to pay interest on the loan and your mortgage term can run from 10 to 40 years.
What kind of mortgages are available?
The short answer is many - more than 3000 and counting - but there are broad types.
If you are buying a property to live in, you will normally take out a repayment mortgage, where your monthly payments go towards paying off the principal/capital (the loan itself) as well as the mortgage interest. Mortgage interest rates vary depending on the mortgage product you choose so make sure to spend time searching the market for the best deal.
For buy to let mortgages, you have the additional option of an interest-only mortgage. Monthly repayments are devoted entirely to paying off the interest accruing on the mortgage but you are still committed to clearing the principal by the end of the mortgage period.
A mortgage from either of these two main types will also be defined according to the way that the interest on the loan is calculated. The most common types of these different approaches include fixed rates (where the interest rate is fixed for a set period of years) and tracker mortgages (where the interest rate varies in line with movements in the Bank of England base rate) but there are others, such as offset mortgages, discount mortgages and standard variable rate mortgages.
Do you have to have a mortgage to buy a house?
No - you can buy a house without borrowing any money (a mortgage is a form of loan used to buy property) - but given the expense involved, many people must use a mortgage to realise their aspirations towards owning their own home. Click on the following article if you would like more information about buying a house with cash.
What happens during the mortgage process?
Essentially, there's 3 stages:
1 Your broker helps you select a product from a mortgage lender and on successful application, you receive a mortgage in principle.
2 When a vendor has agreed an offer you make on a home, you book a mortgage valuation.
3 If your mortgage valuation is approved, you then receive a mortgage offer.
Note that your mortgage valuation is not the same as a home buyers survey - this is explained in this mortgage valuation article
What happens if a disaster prevents you making your mortgage repayments?
A mortgage is a huge commitment; you normally have to repay the loan to your lender - also known as 'redeeming your mortgage' - by making monthly payments over a 25-year period.
You should therefore consider how the money would be repaid were you to either:
1 Die prematurely; or
2 Stop working, either through losing your job or by suffering a prolonged illness.
Your lender can repossess your home if you default on mortgage repayments and if you have family or dependants, they will be made homeless, should this happen.It is for this reason principally that you would take out 2 types of insurance.
LIFE INSURANCE
Life insurance, also called life cover and death cover, is a type of insurance policy which pays out a sum of money, either a lump sum or a series of regular payments, on the death of an insured person or after a set period.
You should strongly consider taking out life insurance if you have a partner, children or other relatives who are dependent on you continuing to produce enough income to keep them secure and provided for.
MORTGAGE PAYMENT PROTECTION INSURANCE [MPPI]
You take this out to cover your mortgage and protect your family and dependants from homelessness in the event that you are unable to work, whether because you've been made redundant or you've become too ill.
SAM Conveyancing is a trading name of Share a Mortgage Ltd registration No. 08798475. We are an Introducer Approved Representative with the Financial Conduct Authority registration No. 618350. We comply with the Solicitors' Code of Conduct 2011 published by the Solicitors Regulation Authority (SRA).
Our registered office is 3rd Floor, 86-90 Paul Street, London, EC2A 4NE and our trading address is 19 Silwood Road, Ascot, Berkshire, SL5 0PY.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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