When you’re thinking about buying a house you need to spend a lot of time considering whether or not it’s the right decision for you. Among the details you must consider is a mortgage. There are a number of different types of mortgages from a wide variety of lenders. So, whether you’re a first-time buyer or have owned homes before, we have some useful and interesting information on one of the most important financial decisions you’re likely to make.
Just so you’re clear on what you’re getting into, a mortgage is a loan – usually from a bank or building society – that you take out to buy a house. Because the cost of buying a home is typically in the hundreds of thousands of pounds, it’s a large loan which can be taken out over periods up to 30 years and sometimes longer.
The mortgage loan is secured with a deposit and by the property. That means if you default on the mortgage, the lender then becomes the legal owner of the property and can sell it to recoup the initial mortgage loan they made on it.
There are two main types of mortgages:
- Interest Only
A repayment mortgage is where your monthly repayments include the interest payment to the lender for the loan and part of the loan amount too. At the end of your agreed mortgage term you will have repaid the entire mortgage loan and associated interest payments and own the home 100%.
An interest only mortgage is where you only repay the interest on the mortgage loan to the lender. At the end of the agreed mortgage term you will need to use additional monies – perhaps from an investment scheme or savings account – to repay the initial mortgage amount before you become the owner.
Repayment mortgages tend to be more popular, both with home-buyers and lenders, as it means you will (in theory) eventually own your own home.
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