Your home may be repossessed if you do not keep up repayments on your mortgage.
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How does a mortgage work?
How does a mortgage work?
A mortgage is basically a large loan used to buy a property. The company that lends the money (the lender) takes what is called a Legal Charge over the property being bought and the property acts as security for the loan. In the event that the borrower breaks the terms of the agreement the lender can take possession of the security by enforcing their Legal Charge. The lender then sells the property and the proceeds are used to repay the debt. If there is any of the loan that is not paid from the sale proceeds, this is still a debt owed by the borrower.The worst possible situation for a lender is taking a property into possession (its not too desirable for the borrower or borrowers either of course) as this incurs a great deal of time and cost, and this is part of the reason why mortgage lenders look for borrowers to contribute to the purchase by putting down a deposit. Generally, the larger the deposit the better the chances are that the lender will recover their money should something go wrong, and the deposit forms part of the overall decision a lender makes when considering an application to buy a house.
Interest on the mortgage is charged either on an annual, monthly or daily basis depending upon lender and even the lenders product range. On a regular basis (usually monthly) the borrower makes a payment to the lender depending upon the repayment method agreed (interest only or repayment) and at the end of the mortgage term the borrower will have either repaid the debt (with a capital and interest mortgage) or call upon other investments to repay the capital outstanding (an interest only mortgage). As we have become more mobile and our expectations have changed the average mortgage lasts less than 6 years and most people move property 3 times before settling in their ideal home (Source: Office of National Statistics, 2006)
How mortgages are structured has become more and more complex as the number of lenders have grown and competition increased (the UK has one of the most sophisticated financial services industries in the world). At any one time there can be as many as 7,500 different mortgage products and generally there is a mortgage available to anyone who is legally allowed to borrow and can afford the payments. Mortgage Calculators
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- National Debtline
- Online Mortgage Assistant
- The Financial Ombudsman
- RICS website
- Association of British Insurers
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