The Beginners Guide to Mortgages

A mortgage is the most important financial product you will get in your life-time, both in terms of the amount of money that you borrow, and the amount of time that you will spend paying it back. Most mortgages have durations of at least 25 years, so the decisions you make now will be affecting you for a long time.

A mortgage is the most important financial product you will get in your life-time, both in terms of the amount of money that you borrow, and the amount of time that you will spend paying it back. Most mortgages have durations of at least 25 years, so the decisions you make now will be affecting you for a long time.

Therefore, its important to get them right.

Before you throw yourself into the complex and really quite intimidating process of getting a mortgage, its important to know what youre looking for. So heres a very basic beginners guide to mortgages.

In its simplest form, a mortgage is simply a loan that you get in order to buy a property. Unlike the majority of other loans, however, it has two important characteristics. Firstly, they take a long time to pay back, and secondly, theyre secured on your house. This means that if you cant meet the repayment terms of your mortgage, the lender is entitled to take your house in its entirety as repayment for the original loan.

This is called repossession, and its a nightmare. To make matters worse, if your house has fallen in value and the bank repossesses and then sells your home. If the amount they sell it for doesnt cover the amount you owe, you will still be obliged to pay the rest of the debt.

Now this all seems rather dire and depressing, but its not actually. The trick is to get the right mortgage for your personal circumstances. Dont take risks when making your decision, you always need to have a little spare capacity to save up for emergencies, and you may just have to accept that you dont yet have enough money for your dream house.

Mortgages are not as straightforward as loans either, there are at least three different types of rates and five main categories. The forms are: fixed rate, tracker rate, and standard variable rates (have a look at the rage of mortgages available from Santander to get some impression of what big high street lenders typically offer), and the categories are: interest-only, standard, current account, offset, and buy-to-let. Each of these has its own characteristics, will be right for certain people but not others, and theres always the chance of getting combinations of rates, or switching between different categories.

Unfortunately, theres not enough space in this article to give a detailed account of each categories, and each rate type. A general rule of thumb is to look for a combination of the lowest rate, and the shortest term, and the best advice is to look up lots of different rates on the internet and try them all out in a good mortgage calculator, which will tell you how much you ultimately will end up having to pay.

So make sure you do your research thoroughly (financial advice websites like Moneysavingexpert can be a great resource), that you know what youre looking for, and what you can afford.

Good luck.

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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