Mortgage Explained

So you have saved your deposit for your first home. Your ready to move in all you need is a mortgage. You have heard people talking about them often enough, family, friends, even the news, but you’re not quite sure what they are.

Mortgages are basically loans. They are loans that are given in order to buy a house. It is different to a regular loan in that the lender will take a look at your credit history along with a few other aspects of your life and confirm whether you would be a risk to their company by not paying them back. Mostly there is no damage apart from to your credit rating if you cannot pay them back. With a mortgage, if you cannot pay for whatever reason throughout the loan then the lender can simply take your house.

Banks are the usual lenders for mortgages. This does not mean you have to go with your current bank you can shop around to find the bank with the best deal for you.

Mortgages are like other loans in that they do have an interest rate however they do carry other costs such as:

Arrangement Fee – This is the cost to set up the mortgage.

Mortgage Valuation Fees – This is the cost to evaluate the property to make sure it provides enough security for the loan

Higher lending charge this will only apply if you are borrowing a high amount of the property’s value

Early Repayment Charges you usually have to pay a penalty to get out of the mortgage. If possible try and avoid mortgages that carry ERC’s

Exit Fee’s – many lenders charge an exit fee to close your mortgage account or when your switching lenders.

When you are setting up a mortgage you are asked to pay a down payment. This is the lump sum that affects the amount you are going to pay each month. You can choose as much as you like to pay but the more you pay then the less you have to pay each month. The amount that you are lending after your down payment is called the principle. On top of the principle you have the Interest. You also have your property taxes to pay (this is normally put into a third party account until they are due to be paid) and finally the bank normally requires you to take out insurance to cover you form Fire, Storms, theft and floods.