Mortgages & Remortgages
Written by PayPlan on 16 June 2011
Buying a home and getting a mortgage is a huge financial commitment whether you are a first time buyer or whether this is your second or third home. Due to the current economic climate the housing market appears more unpredictable than ever and it can be a difficult decision as to whether you jump onto the property ladder or not.
Today I want to briefly go through what a mortgage is and what it means to remortgage.
What is a mortgage?
A mortgage is when you take out a loan from a bank, building society or specialist mortgage lender in order to purchase a property. Your mortgage lender will agree to lend you the money based on the condition that you maintain monthly payments for the term of your mortgage; if you fail to do so then you risk your home being repossessed. The lender will take first charge on your property which means in the event of sale they get first priority.
What are the different types of repayments for a mortgage?
In order to repay your mortgage, it isn’t as simple as splitting the amount borrowed over a set length of time. There are several different repayment types. The most common repayment types are;
- Interest only – this is where your monthly payments will go towards paying off the interest on your mortgage only. You will then be required, at the end of the mortgage term, to pay the remaining capital (amount originally borrowed). This is usually done an endowment paid as part of a separate agreement or savings. This type of mortgage is traditionally known as an endowment mortgage.
- Repayment – this is where you repay the capital amount and the interest off your mortgage together in one monthly payment. At the end of the mortgage term there will be nothing to repay.
What are the different interest types?
All mortgages will be subject to an interest rate, and the amount of interest you repay will largely depend on the type of rate you are on. Here are a couple of options;
- Fixed Rate – this is where the interest is fixed for a certain period of time.
- Variable Rate – this is a rate dependant on each individual lender and can fluctuate. It is usually reflective of the rate that lenders buy and sell money between themselves.
Remortgaging is where you replace an existing mortgage with a new one, without moving home. This could be with the same lender and you just change the product or it could be with a different lender all together.
If you have equity in your property then it may be possible to release some of this and help relieve any financial strain that you may have from other debts or allow you to carry out some home improvements. However failure to keep to your repayments of a mortgage or other debts secured on it will, of course, put your house at risk of repossession.
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