Friday, 13 April 2012

Mortgages Dorset: The mortgages basics

As you can see from our site, there is a lot of information about mortgages to take on board and it can be difficult to know where to start. What basic information about mortgages do you need to know?
What is a mortgage?
In order to purchase property we often have to borrow money from lenders. This money is then paid back over a fixed period of time. A mortgage is in fact the lender’s security for the money they have lent you. This means they can use the money from the sale of the house should they ever need to recover any debts.
Is there more than one way to pay back the money borrowed?
Yes, there are a few basic ways to pay back the lenders: a Repayment Mortgage, an Interest-only Mortgage or a Flexible Mortgage.
Repayment Mortgage
With this type of mortgage you can pay back a set monthly amount of money which will consist of the actual money you borrowed (the capital) plus a share of the interest on the money you borrowed. At the end of the agreed period of time (usually 25 years) you will have then totally paid off the mortgage. This is considered to be the least risky type of mortgage repayment.
Interest-Only Mortgages
As the name of this type of mortgage repayment states, the monthly repayments made to the lender only cover the interest owing on the amount of money borrowed. This means that you do not pay off any of the capital you have borrowed. Therefore, at the end of the fixed period of time (usually 25 years) the actual money borrowed (e.g. the capital) remains the same as when you first borrowed the money. You must find a way of saving the money in order to pay off the outstanding money at the end. There are a number of options for doing this including paying into an investment fund (ISAs being an example of this)
Flexible Mortgages
This allows you to pay a different amount of money every month dependant on your monthly salary. This is particularly used by people who have a fluctuating monthly income.

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