Mortgages
What is a Mortgage?
In simple terms, Mortgages are long term secured loans.
In the United Kingdom most private individuals use a Mortgage as a vehicle to buying a property, which is normally their home.
Being a secured loan, the Mortgage Lender holds a first charge against the property, equal to at least the outstanding balance of the loan, for the full duration of the repayment term.
There are primarily 2 types of Mortgage:
- A Capital and Repayment Mortgage: This is a mortgage which is structured to reduce over the mortgage repayment term because the borrower is making payments larger than the cost of the interest alone. At the end of the agree mortgage term, the borrower will have repaid the whole of the mortgage in full.
- An Interest Only Mortgage: This is a mortgage which has no defined repayment date. The repayments are calibrated to cover just the cost of the interest payments alone. At the end of the agreed term of the mortgage the outstanding balance will be as it was at the beginning of the mortgage.
Mortgage lenders apply qualifying criteria to all applications to help establish the size of mortgage loan they will extend to any particular individual. These qualifying criteria will typically look at an applicants income and compare it against their financial commitments.
A mortgage lender may also require a sizeable deposit is made available as a precondition to offering a mortgage to an applicant.
Mortgage lenders assess the suitability of a potential applicant by checking their recent credit history, where strict standards are applied. Any adverse credit rating will have a serious impact on the chances of a successful application.
For people who have a poor credit history, there exists a secondary market place where mortgage lenders lower their normal expectations.
This market is known as the Sub-Prime market, which in recent times has seen dramatic reductions in business,as lenders try to protect themselves from taking on borrowers unable to maintain their financial commitments.
For further information on Mortgages please call an adviser on 0800 088 7502
