Mortgage – A Beginner’s Guide

Mortgage - A Beginner’s Guide

Mortgage – A Beginner’s Guide explains what a mortgage is exactly. A mortgage is a type of loan you take out to buy a property. Since most people don’t have the full amount of money needed to purchase a home upfront, a mortgage allows them to borrow the money from a lender (usually a bank or building society) and pay it back over time.

How Does Mortgage Work?

When you get a mortgage, you agree to pay back the amount you borrowed (called the capital), plus interest, over a set period known as the mortgage term.

Mortgage terms typically range from 10 to 35 years.

Your monthly mortgage payment usually covers:

  • Capital: The portion of the loan you’re repaying.

  • Interest: The cost of borrowing the money.

Some mortgages may also include fees or insurance, depending on the product you choose.

Types of Mortgages

Here’s a general comparison of the most common types of mortgages:

Repayment - Pay both capital and interest each month.

Pros - Gradually own more of your home; fully repaid at end of term.

Cons - Monthly payments can be higher than interest-only.

Interest-only - Pay only the interest monthly; repay full capital at end of term.

Pros - Lower monthly payments.

Cons - You must have a plan to repay the capital at the end; risk of not being able to repay.

Fixed-rate - Interest rate stays the same for an agreed period.

Pros - Predictable payments; protection from rate rises.

Cons - You may be paying more if rates fall.

Variable/Tracker - Rate changes, usually following the Bank of England base rate.

Pros - Can benefit if rates drop.

Cons - Payments may rise if rates go up.

Why Do People Get Mortgages?

Mortgages make homeownership possible for many people by spreading the cost over many years.

This means you can buy a home without needing the entire purchase price upfront.

Key Things to Consider

  • Deposit: You’ll usually need to put down a deposit (commonly 5-20% of the property value).

  • Affordability: Lenders will check your income, expenses, and credit history to make sure you can afford the monthly payments.

  • Interest rates: Even small changes in rates can affect how much you pay over the lifetime of the mortgage.
Final Thoughts

A mortgage is one of the biggest financial commitments you’ll ever make, so it’s important to understand how it works before you proceed.

Always speak to a qualified mortgage adviser who can assess your personal situation and help you find the most suitable option.

This article is intended for general information only and does not constitute financial advice. Always seek personalised advice from a qualified mortgage adviser before making any financial decisions.

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