Mortgage Basics

 What is the definition of a mortgage?

Many people believe that a mortgage is the loan itself. However, a mortgage is actually the lending document which will designate your property as security for your loan. Under a mortgage agreement, your property is not considered to be entirely yours unless you have fully paid the value of the loan. If you do not keep up with loan repayments, your lender is within their legal rights to obtain a repossession order from the courts.

How long does a mortgage need to be paid?

The length of a mortgage depends on the specific deal you are able to get from your lender, and it hinges on the amount of income you earn and how old you are at the time of application. On average, a mortgage is repaid over a period of 25 years, but in some cases it may take up to 40 years.

The Components of a Mortgage

-  Capital: the amount lent to you by the mortgage lender

-  Interest: the amount added to the loan value which you have to pay at set rates. There are many ways to calculate interest, and it's important to research all the types before committing to one. 

Important Terms to Keep in Mind

-  Annual percentage rate: the APR is the actual interest rate the lender will charge you (inclusive of associated costs)

-  Conveyancing: a term relating to the legal process of buying and selling of property

-  Valuation: a survey of your property to determine if it has sufficient value to act as your loan security 

Repayment Periods

If you are granted a longer repayment period, generally, the monthly payments are smaller than those due over a shorter payment period. However, a rule of thumb for mortgages is that longer payment periods means you actually pay more to the lender in the end. You have to weigh the short-term advantages of assuming higher monthly payments for a shorter payment period against the long-term advantages of smaller monthly payments over a longer payment period.

Remortgaging

Mortgage borrowers should be informed that they may eventually switch to a remortgage package. A remortgage is basically switching mortgages while the homeowner uses the same property as security. You are given the option of renegotiating with your current lender or moving your loan to a different lender altogether. Most people who remortgage do so to secure a lower interest rate, to pay for a large expense, or to free up equity in their property.

Exceptional Cases

Though most mortgage lenders are quite conservative when it comes to their lending criteria and practices (and increasingly so since the start of the downturn), certain mortgage lenders specialise in riskier lending. For example, there are lenders who may provide mortgages to the self-employed, people with negative credit ratings and individuals who lack any credit history (through lack of previous debt) Many mortgage lenders shun such potential borrowers because they may seem less likely to be able to pay back the money in full, but others are able to offer mortgage deals for those in more unique circumstances.  So even if one lender has told you that you do not fit their borrowing criteria, don't despair. It is always possible to find other mortgage lenders who are willing to accommodate you. It is worth pointing out however, that if you do have poor credit, or no credit history, you are likely to be offered less competitive interest rates.

If you feel you're ready to find the right mortgage for you, take a moment to fill out our short form.  A qualified mortgage advisor from the SimplyFinance network will then contact you to answer all your mortgage questions and search the mortgage market to find the best mortgage deal for you.