What is a Mortgage?
A mortgage is a type of loan specifically used when buying property. Mortgages can be obtained from banks and building societies as well as specialist mortgage lenders. The mortgage is divided into two parts, capital and interest.
What types of Mortgage are there?
There are a number of different types of mortgage available in the UK. The most common type of mortgage is a variable rate mortgage in which interest rates set by the lender vary according to alterations in the base rate. Also common is fixed rate mortgages in which the rate of interest charged will not change with the base rate. Other types of mortgage include capped rate, cash back, deferred interest and endowment mortgages.
How much can you borrow?
The amount a person can borrow depends on both the value of the property being bought and the person's yearly income. Most mortgage lenders will generally allow loans of up to 75% of the value of the property. There are however some that will lend 90% and even up to 100% of the property's value. Although rules will vary between different mortgage lenders on average the most a person will be allowed to borrow is three and a half times their annual earnings.
What are the costs of a Mortgage?
As well as interest payments mortgage lenders will typically charge a range of other fees. Many lenders charge an initial set up fee at the start of the mortgage to cover administration costs. Other occasions in which fees may be charged include missing a payment, ending the mortgage early and one off administration fees.
How long do mortgages last?
Typically mortgage repayments will be made over a period of 20 to 25 years although some will be paid over a shorter period than this. The benefit of paying a mortgage over a shorter period of time is that although monthly payments are higher the total interest paid over the mortgage period will be reduced.
What happens if you fail to pay your mortgage?
It is important that people entering into a mortgage agreement are able to keep up with their monthly repayments. Most mortgage lenders will charge penalty fees in cases where mortgage repayments have not been paid on time. If payments are unpaid over a longer period of time then the home will most likely be repossessed.
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