Purchases don’t come much bigger than property – whether it is intended to serve as your own home to live in or whether you are a landlord buying to let.
Because very few people have the money to buy that property outright, the majority do so by borrowing the required sum through the help of a mortgage.
A mortgage is a particular method of borrowing in which the loan advanced is secured against the property itself – a mortgage in other words is a type of secured loan.
Who might this product be suitable for?
Mortgages offer a suitable form of borrowing for anyone serious in owning their own property. Given the sums of money likely to be involved and the length of time it may take to repay the loan, a mortgage is not something in which you might want to enter lightly.
A glance at any mortgage guide – that provided by the government sponsored Money Advice Service, for example – might help to confirm how complicated is the choice between various types of mortgage from many different mortgage lenders.
So, you might want to ease the passage of your application by consulting a mortgage broker or other mortgage specialists who is professionally trained in such matters and may bring to bear the kind of experience and expertise designed to secure you the mortgage you want on terms you are able to afford.
What does a mortgage typically involve
Securing a mortgage typically involves your being able to demonstrate to the lender that you are in a financial position to repay the loan. You may be asked for proof of your monthly income, for example, and asked questions about your spending habits, whether you have any children and whether your budget has also taken into account the ongoing costs of running your own home (maintenance, insurance, household bills and council tax, for instance).
The assessment of whether you are able to afford a mortgage is closely influenced by the size of the deposit you are able to offer. A minimum deposit is almost certain to be required by the mortgage lender.
If you are able to meet the minimum qualification, the bigger the deposit you are able to furnish the less you need to borrow and the smaller the mortgage you need. The interest you pay on your borrowing may also be reduced in recognition of the larger deposit you are making.
Mortgages may be broadly differentiated by the different repayment terms each attracts:
Repayment mortgage – this is the classic arrangement by which you make monthly repayments on the reducing balance of the mortgage borrowed, until, at the end of the term, you have generally repaid it in full;
Interest only mortgage – it might seem immediately attractive to be paying only the interest on the money you have borrowed, but the capital still needs to be repaid at the end of the mortgage term and the cost of the separate savings plan to ensure that you are able to repay the capital might significantly increase the cost of overall borrowing;
Repayment and interest only combined – many mortgage brokers and providers may be able to offer a combination of both types of borrowing, tailored to suit your particular needs and circumstances.
Is there anything I need to know?
Probably the single most important thing to remember whenever you are looking to arrange a mortgage is that if you fail to make the repayments, your very ownership of the property is at risk – this is a fundamental principle of the secured loan.
For good reasons, mortgages have provided a way for very many individuals to borrow the money needed to buy property they intend to live in or to let out to tenants. The principles of this kind of borrowing may be relatively straight forward, but you almost certain to need professional financial advice to help you arrange a mortgage.