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What Are Mortgages?
The UK mortgage market is huge and varied with hundreds of providers and thousands of mortgage products. However, not many people fully understand what a mortgage is. Originating from the French words ‘mort’ and ‘gage’, meaning dead pledge.
Stripped down to essentials, this meant that if the borrower didn’t pay the outstanding loan, then the property belonged to the lender. In the early days of mortgages, a property was deemed to belong to the lender until it was fully paid off. With modern mortgages, the property is deemed to belong to the borrower, though the lender retains an interest in the property until the loan has been repaid. There are many types of mortgages, including bad credit mortgages for those with a poor credit history.
There are three important elements of every mortgage – the size of the mortgage, the term of the mortgage and the interest rate. The size of the mortgage is how much money you have borrowed. In most cases, this is a percentage of the property’s value, usually anywhere from 75 per cent to 95 percent. This is known as the loan to value ratio. Some lenders provide 100 per cent mortgages and there are even a few who will lend more than the value of the property.
The Mortgage Term
The term of the mortgage is how long you have to repay the loan. A typical mortgage term is 25 years, but the period may be much shorter or much longer depending on the lender’s criteria. For example, if you are a first time buyer and are relatively young with a steady income, you may be able to get a longer term. If you take out a mortgage when you are near retirement age, the typical mortgage term may be much shorter.
For most people, the interest rate is the key to what makes a mortgage suitable or unsuitable for their needs. The interest rate for a particular mortgage may be based on the Bank of England base rate (also called the repo rate) or the London Interbank Offered Rate (LIBOR). Other factors that affect the interest rate are any incentive deals and whether your credit is good or poor. Bad credit mortgage holders will typically pay a higher than standard mortgage interest rate.
When it comes to mortgages, the best advice is to shop around for the best combination of interest rate, incentives and mortgage term to find the deal that best suits your needs. Watch out for tie in periods and large fees as these can affect the true cost of your mortgage.
Latest mortgage news
- Future property purchasers need to keep an eye on their finances
- Increased popularity for variable rate mortgages
- Nationwide answers Darling’s call
- Consumers wary of long term fixed rates
- House prices fall for first time in two years
- Renting could be cheaper than paying a mortgage
- UK sees rising repossession levels
- Consumers being told to lie to get a mortgage
- Should we expect another interest rate rise?
- Homeowners enjoy reprieve for August
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