UK
Mortgage Explained;
When we make a decision to buy property, the vast majority
of us will need to get a mortgage from a bank or a building
society. This mortgage is essentially a secured loan against
your property and the property is at risk if we don’t continue
with the monthly repayments.
For first time buyers, the whole process involved in getting
a mortgage can be pretty daunting. It is the biggest financial
decision you will make. The ideal situation is to try and
save as much of a deposit as you can. But even if you have
no deposit, most lenders now offer 100% mortgages. The first
thing you must do before approaching lenders is to work out
exactly how much you can realistically afford to pay back
monthly. It is important not to overstretch yourself financially.
There are essentially two types of mortgages available to
first time buyers – a repayment mortgage and an interest only
mortgage.
With a repayment mortgage, your monthly payments go towards
both the capital you have borrowed and the interest charged
on the amount borrowed. Your monthly payments will be more
than an interest only mortgage as you will be paying off the
capital and the interest. Repayment mortgages are ideal if
you want the reassurance that, at the end of the loan period,
your debt to the mortgage lender will be repaid in full. This
type of mortgage is in contrast to an interest-only mortgage
where there is no such guarantee.
At the end of the mortgage term, usually 25 years, your mortgage
will be completely paid off. With an interest only mortgage,
your monthly payments only go towards the interest. The actual
mortgage balance - the amount borrowed - does not reduce.
At the end of the mortgage term, you will still have to pay
off the capital that you borrowed. So, you will have to make
other investments to cover this cost.
But as with any investment, there is no guarantee that you
will have accumulated enough capital to pay off this amount.
It is very rare to stay with the same mortgage lender throughout
the term of the mortgage. So you may start off with an interest
only mortgage and then change to a repayment mortgage when
you remortgage after a few years. |
