Mortgages are often one of the biggest financial commitments we can enter into in our lives – but what on earth are they?
A mortgage is a loan, usually of a large amount of money. They are secured on a property, such as a house. This means that if you don’t pay back the loan, the lender has the legal right to repossess that property. Loans are known as secured if there is a tangible thing which the borrower agrees that the lender can take if the borrower fails to repay the loan.
The main reason why you may wish to take out mortgage is to buy a house. This is because houses are normally more expensive than we can afford, especially earlier on in life.
One way you could deal with houses being so expensive is to save up over time to eventually afford to buy one. However, unlike other things which you might want to save up for, houses are not only exceedingly costly but they are also quite necessary (although alternatives to owning your own home, such as renting private or from a social housing authority exist too). Since people want them early in life, they can get a mortgage to buy a house sooner rather than later.
Mortgages come with interest which means you will pay back more at the end of it than you borrow to begin with. In addition, there are other fees that normally apply such as closing fees/administration charges.
Different lenders offer either fixed or variable interest rates so you should shop around for the type of interest rate that you prefer.
Variable interest rates can change so they carry extra risk. They could fall over time, meaning you pay back less than you first expected or they could rise, meaning you pay back more than you first expected. Fixed interest rates on the other hand offset that risk by staying the same over time. This means that you wouldn’t directly benefit by a general fall in the interest rates market-wide because you’d still be paying back the same rate, however you also wouldn’t be directly disadvantaged by an increase in general market-wide interest rates.
Mortgages are not to be taken out lightly. They normally last for years, if not decades. It could be helpful to look at whether you will be able to afford to keep up mortgage repayments over the years of the mortgage.
Considering, for example, whether your wages/salary will be enough, what other costs may arise during your mortgage (e.g. cars, medical bills, upkeep for family members) and whether your income will be secure if recessions occur.
Ultimately, seeking advice from a qualified financial adviser could be your best bet at ensuring you choose the best mortgage for your circumstances. Other sources of information regarding housing you could find helpful include the Citizens Advice, the Shelter charity or similar services.
Original article by Overdraft.com. All rights reserved.
Please note that this is for informational purposes only and doesn’t constitute financial advice.
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