Mortgages are tricky to understand for new borrowers, don’t get lost!
Plenty of people think that hunting for a mortgage can be quite overwhelming, and who could really blame them. If you have never experienced a mortgage before then comprehending them can be quite difficult work. There is always a lot to take in at first, a load of words and phrases you have almost certainly never heard of and a whole load of mortgage types thrown in just to try and confuse you. Not bypassing the fact that a mortgage is going to be the largest financial transaction you will be part of in your life, at least until your next mortgage! So what do you need to know before you start to compare mortgage rates?
To explain mortgages easily, a mortgage is a loan from a mortgage lender you use for the purchase of a property. The property is then held by the bank as security until the entire amount of the mortgage has been repaid along with the associated interest payments. Paying off a mortgage can take a very long time, probably 25 years or longer.
To try and confuse you many building societies like to use a range of words for different things. Some banks may refer to themselves as a mortgagee. This is basically the legal name for the mortgage lender. They may also refer to you by the word ‘mortgagor’. This is the legal name for you – the mortgage holder or borrower.
When paying back your loan there are two alternative methods you can choose to go about it. The first mortgage repayment method is the capital repayment method. This type of repayment is where you pay back the interest on the mortgage along with a small amount of the initial capital each month. This will be done until the whole amount of the loan is repaid to your building society.
The second method is by paying the bank the interest only for the length of the mortgage. This type of repayment is where you will only pay back the interest on the initial mortgage each month, and the loan itself is paid back by using some sort of investment that runs along side the loan. This is very reliant on finding a reliable investment that will guarantee to repay the loan at the end of the period. Endowment policies have been used for this in the past and other borrowers have relied on inflating property prices to secure the repayment of their loan. Obviously, both of these methods are not without their worries!
As it is for everything, mortgages are different for every borrower. There are a variety of types of mortgage for nearly every situation and finding the right one can sometimes be time consuming. Talking to a mortgage broker or mortgage advisor if you have never done it before can be a very worth while thing and they can help you to compare best mortgage rates. There is nothing worse than having a loan that isn’t the correct choice for you.
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