So, what is a mortgage?
Mortgages can be pretty complicated, and it's not something any of us are usually taught in school.
So, what is a mortgage?
Say you want to buy a house, but you haven't saved up enough money for the full purchase price. A mortgage helps you buy that house without being able to pay the whole cost upfront. Essentially, you're borrowing the bit you aren't paying upfront and promising to pay it back later. Mortgages are usually paid back over 25 years but can be anywhere between 6 months and 40 years. It depends mainly on how much you can afford to repay each month, how close to retirement you are, and what your plans for the future are.
How much you pay off your mortgage each month, and how long you'll be paying for it is what you'd see a mortgage adviser or broker for as they can help you get the best deal from the thousands of mortgage deals out there.
-Enter mortgage companies or lenders-
Here's an example: You want to buy a house for £100,000 and you have £25,000 saved up.
You put that £25,000 of your own money towards paying for the house, and the bank or lender comes along and puts in £75,000. When this is combined, you've got £100,000 to buy the property. There are a few other costs involved in buying a property that we'll cover in another post, but we're just talking about the mortgage here.
Happy days, you're a homeowner.
The bank or lender doesn't lend you the money for free, they have to make money too. They charge an interest rate on the money they've lent to you which you pay back as part of your monthly repayments.
The difference between a mortgage, and a normal loan
Firstly, a mortgage is usually a bigger loan and lasts much longer than your standard bank loan. Bank loans tend to be used more for smaller purchases like emergency car repairs or small home renovations.
Secondly, and probably most importantly to note, is that a mortgage is secured against the property you're buying. This means that if you don't keep up with repayments against your mortgage, the bank has the right to take back the property and sell it to cover their losses, which means you could lose your home.
As you can imagine, for most people paying for a house upfront is completely unachievable, so mortgages are pretty common in today's world.
If you have any mortgage or home-buying questions that aren't covered here - Let us know, we'd love to help. Get in touch with us here, or book a free call to chat with a broker here.