What is a mortgage?
A mortgage is a loan of a lump sum, from
a lender, which you use to buy the title to a house.
The lender
expects to receive interest on the amount of loan, often over a 25 year
period and at the end of the lon period, the
original amount of capital repaid.
Your property is held as security (assigned) - by means of the mortgage deed -
until the loan is repaid.
If for any reason you do not keep up with the payments of the interest
or capital amount then the lender is legally entitled to force the sale
of your property in order to recover the amount owing.
This is why you see all the warnings which accompany all mortgage
illustrations and advice, as follows:
| Your home is at risk if you do not keep up repayments on the mortgage or other loan secured on it | Be sure you can afford the repayment before entering into a credit agreement such as a mortgage. |
We always recommend that you are made fully aware of all the
details of the mortgage (loan) that you are taking out and that you seek
independent advice on the most suitable mortgage for you, not simply the
one on offer from the Estate agent or your High Street Bank.
There are hundreds of options available in the marketplace.
Although there are many confusing descriptions of mortgages - endowment
mortgage, PEP mortgage, fixed rate mortgage etc - the underlying
explanation is relatively simple.
What are the different types of mortgages?
There are two main types of mortgage
available;
Capital & Interest (often called a
Repayment mortgage)
Interest payments are made, plus the capital sum borrowed is gradually paid off year by year throughout the term of a
mortgage - normally 25 years - so at the end nothing remains owing to
the lender.
Interest Only (Endowment / Pension / ISA/ PEP)
Only interest payments are made throughout the term of the mortgage,
with the capital sum borrowed remaining payable at the end of the
term.
To provide the capital to repay this capital sum, at the end of the
period , an investment plan (either an endowment policy, ISA, pension
plan or other
suitable plan - is taken out when the mortgage
loan is agreed.
Payments are made to the investment plan at the same time as making the
interest payments on the mortgage.
At the end of the mortgage term, the value of your
investment will be used to repay the capital sum borrowed If there is
any surplus over the capital sum borrowed then this will belong to you.
The mortgage loan is used either to
purchase a property, or for a remortgage if you are remaining in your
present property and are simply changing lenders in order to gain a
lower interest rate.
Variable, Fixed, Capped or Discounted
Your independent financial adviser is best placed to explain these matters and help find the
best mortgage for you.
