A mortgage is simply the name given to a loan which is secured against a property because so few people have enough liquid assets.
Mortgages are offered and approved by financial organisations who will charge interest just like any other loan to make money on them.
There are a number of features to a mortgage which can make them more or less expensive, secure or even financially dangerous.
Types Of Mortgages
Capital & Interest
The most common method to repay a mortgage by paying both capital and interest because this pays both the mortgage loan and the interest charged as well.
The amount of interest will depend on the agreed interest rate when the mortgage was granted by the financial organisation who will decide on risk.
The riskier a borrower is, the higher the interest rate charged by lenders, which is one of the reasons why getting financial advice before applying can be vital.
A plan whereby the borrower only pays the monthly interest for the mortgage loan, however the original loan may remain outstanding until the end of the mortgage term.
While none of the mortgage loan is repaid and will remain outstanding, an interest only mortgage will make monthly repayments cheaper.
This can be a dangerous option for people who remain on this plan and until the end of their mortgage term without a plan on how to repay the mortgage.
Some people have used this when they have shares or investments which they know will have a due date for a certain payout, helping to cover the remaining mortgage balance.
Once someone has a mortgage they are not necessarily stuck with it for the full term, whenever a borrower changes their current mortgage it’s considered a re-mortgage.
There are two main reasons someone would want to re-mortgage, either they want to release equity in the property or get a better mortgage deal.
Buy To Let
When buying a property with the intention of letting it out, either to make money from it or any other reason, it’s necessary to get a buy to let mortgage.
Buy to let mortgages often have higher interest rates because the increased costs and risks associated with having tenants living in the property.
When someone does default on a buy to let mortgage the work involved with repossessing the property and reselling it can be more complex.
Anyone who lets out a property with a mortgage which isn’t a buy to let is risking having it cancelled by the lender and being forced to pay the full amount remaining.
See current buy to let mortgage rates.
Why Use A Financial Advisor
Mortgages are complex financial products with different elements to them such as interest rates, mortgage terms and important legal jargon.
A financial advisor is able to find people mortgages, get better deals and make sure they know exactly what is being agreed too before signing on the dotted line.
An adviser can also save you time by assessing your circumstances and advising which documents and proof will be required for the mortgage application.
When speaking with an advisor you are not obligated to take their advice and you should make sure they are reputable before agreeing to their service and fees.
Our mortgage calculator will show you the monthly payments broken down into capital, interest, tax and insurance over the term of the mortgage.
You can’t leave insurance and tax blank if you’re unsure or don’t plan to have any however the final answer from the calculator maybe incorrect in the long term.