What is a mortgage
A mortgage is a loan taken out from a mortgage lender to help you pay for a property.
Remember, if you don't repay the loan (as set out in the agreement) the lender can take possession of the property and sell it over your head to recoup the money that you owe them.
A mortgage is made up of two elements:
- capital - the amount of money you borrow to buy the property
- interest - the amount that the mortgage lender charges for lending you the money
There are basically three different types of mortgages:
- Repayment mortgages
- Interest only mortgages
- Current Account mortgages
The two most significant things to find out about any mortgage are:
- the interest rate
- the mortgage fees
The Interest Rate
The lower the interest rate, the lower the amount of money you will have to pay back to the mortgage lender. They will let you know what their interest rate is when you are applying for your mortgage and give you details of how this translates into the amount of money you will need to pay them each month.
The Mortgage Fees
- The set-up fee
Sometimes called an arrangement or reservation fee. The size of the set-up fee depends upon the mortgage you choose.
- The early redemption penalty
The mortgage will be for a set length of time (called the mortgage term). If you choose to pay off the mortgage early, the lender may charge you an early redemption penalty.
- Mortgage Insurance
The mortgage lender will expect you to insure your life, in case you die before the end of the mortgage term. If the worse happens, the insurance money will pay off the loan and your dependants will not be homeless.
- Mortgage Payment Protection Insurance
You can insure your monthly mortgage payments in case you loose your job or become unable to work. This is an optional insurance.