A mortgage is borrowing money using property as a security, a type of secured loan in other words. Primarily,
purpose in borrowing money is to purchase a property. A mortgage is really another word for a property loan - a loan that allows you to borrow a large amount of money in order to buy a home or property which is secured on value of that property, and which you pay back over an agreed period of time.
The term 'secured' means that if you default on payments and can't keep up with payments schedule as agreed, lender has right to sell your property in order to recover their money.
A mortgage can be broken down into four main parts:
Capital – This is amount of money that you borrow to buy house.
Interest – This is charge for borrowing money. Worked out as a percentage of capital. Term – This is fixed period of time that money is borrowed over.
Repayments – These are regular payments you make throughout term of mortgage. The mortgage is created by a legal charge on property and, significantly, does not involve transfer of land. The charge confirms that property has been pledged to lender as security for mortgage loan.
Mortgages are usually repaid over 25 years, but depending on your situation and earnings it can be arranged over either a longer or shorter period of time. The amount you borrow is called 'capital', and you will also have to pay back interest charged to you by lender.
The title deeds are held by lender but when purchase monies are paid over to vendor, usually through a solicitor, mortgagor becomes owner of property. The legal charge is supported by a loan agreement between two parties which sets out terms of loan, responsibilities and undertakings.
You have two options - repay capital and interest together - this is a 'repayment' mortgage, or repay interest only, and organise another investment to cover capital at end of term. This is known as an 'interest only' mortgage.
When looking at how much money a lender is willing to let you borrow, there are two factors that they will want to consider.
First of all, they will want to know how much you earn. Usually you will only be able to borrow around three times your salary.
