MORTGAGE BASICS

If you are totally new to mortgages and what they are about then you really should read this before you start on your quest of finding a loan to buy a property.

This page describes a mortgage or home loan in a simple and straightforward fashion. The concepts are quite easy to understand but the terminology may be new to you.

What is a Mortgage?

A mortgage is a loan you take out to buy your home or other property such as a house or flat, and you may find this referred to as a loan against property.

The property you buy with the loan will be used as security for the loan, which means that if you fail to pay off the loan the lender can legally take possession of your property and sell it to pay off what you owe them. If you have any questions or don't understand any of the concepts on this page then just call us so that one of our brokers can advise you.

The period of time for which you can have the loan will be a specific number of years, such as 25 years, and will be agreed between you and the lender you borrow the money from.

You will have to pay off the loan back to the lender by the end of this loan period or before if you wish.

What is Interest?

While you still owe money to the lender you will have to pay interest each month on the amount of the loan still outstanding.

The amount you pay each month will be determined by the interest rate that the lender specifies is attached to the loan.

Interest rates quoted by lenders are expressed as a precentage such as 5% of the loan value per year.

Each lender will quote different interest rates for each type of mortgage they offer, but all interest rates will be linked to the Bank of England base rate. When the bank increases the base the rate mortgage lenders will increase the interest rate on new mortgages and variable rate mortgages and when the base rate goes down many mortgage lenders will decrease their rates too.

The interest you pay to the lender is how they make money out of providing home loans.

Depending on the type of deal you have with your lender the interest rate may be fixed for a time or may be variable.

What is APR ?

APR stands for Annual Percentage Rate. It is expressed as a precentage of a loan value over a year and is meant to indicate more clearly the true cost of taking out a loan. It does this by adding additional costs to the interest rate quoted by lenders. These are the extra costs that you might have to pay during the term of any mortgage, such as fees, charges and any compulsory insurance.

Lenders must quote an APR for every mortgage they offer so that you can make a realistic comparison of the true cost of different mortgages. Usually the deal with the lower the APR will be the cheaper alternative.

How Do I Get A Mortgage?

You can arrange a mortgage directly with a traditional or high street lender such as a bank or building society or through a specialised lender or mortgage broker.

Traditional lenders will only provide you with their own mortgage product, which means you will have a restricted selection to choose from.

Mortgage brokers may also be specialists but will provide a much wider selection of options as they are independent and can get you a mortgage from any lender.

A mortgage broker will therefore be able to arrange mortgages for individuals who have different needs and circumstances than those people who would normally be acceptable mortgage candidates for the traditional lenders.

Do I Need Insurance?

Finally, it may be a requirement or your mortgage that you take out life insurance to pay off you mortgage should you die. Other insurance will also be available to you to provide an income should you lose your job or to protect your mortgage payments if you become sick or disabled.