Mortgages are tricky to understand for borrowers, make sure you don’t get lost!
Plenty of people think that looking for a mortgage can be quite overwhelming, and who could really blame them. If you have never experienced a mortgage before then comprehending them can be quite hard work. There is always a lot to take in to begin with, a load of words and phrases you have probably never heard of and a whole load of mortgage types thrown in just to try and confuse you. Not ignoring the point that a mortgage is going to be the largest financial transaction you will be part of in your life, at least until your next mortgage! So what do you need to know before you start to compare today’s mortgage rates?
To clarify mortgages easily, a mortgage is a loan from a building society you use for the purchase of a property. The property is then offered to the building society as security until the entire amount of the loan has been paid off along with the associated interest payments. Paying off a mortgage can take a very long time, on the whole 25 years or longer.
To try and confuse you many mortgage lenders like to use a variety of words for different things. Some building societies may refer to themselves as a mortgagee. This is basically the legal name for the building society. They may also refer to you by the word ‘mortgagor’. This is the legal name for you – the mortgage holder or borrower.
When paying back your loan there are two alternative methods you can choose to go about it. The first mortgage repayment method is the capital repayment method. This type of method is where you pay back the interest on the loan along with a small amount of the initial loan each month. This will be done until the entire amount of the loan is repaid to your bank.
The second method is by paying the bank the interest only for the length of the loan. This type of repayment is where you will only pay back the interest on the initial mortgage each month, and the loan itself is paid back by using some sort of investment that runs along side the loan. This is very reliant on finding a reliable investment that will guarantee to pay off the loan at the end of the period. Endowment policies have been used for this in the past and other mortgage holders have relied on increasing house prices to secure the repayment of their loan. Obviously, both of these methods are not without their problems!
As it is for everything, mortgages are different for every person. There is a different type of mortgage for nearly every situation and finding the right one can sometimes be time consuming. Speaking to a mortgage broker or mortgage advisor if you have never done it before can be a very worth while thing and they can help you to compare all mortgage rates. There is nothing worse than having a mortgage that isn’t the correct one for you.
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