Tired of living at home or sharing a tiny flat with 4 people who think it makes sense to play drum and base at full volume at 2am? Unless you're from a super rich family or you're a Trapstar, you are probably going to need a mortgage to buy your first home.
What is a Mortgage?
Keeping things really simple, a mortgage is just a large loan that you use to buy property or to buy some land.
All mortgages have a "term", this is how long you will have to repayment the money back for. Mortgage loans use your property or land as protection against you not paying back the loan. This is called 'security', so the mortgage is 'secured' against your property.
Once you've paid back your mortgage in full, plus any interest, the property will officially be yours!
This means that if you run into trouble paying back your mortgage, the bank can take back your house to get their money back.
It’s not your house anymore!
This process is called repossession, you definitely don't want that.
When you buy a house, you pop down a cash deposit, which is usually at least 5-25% of the house price.
You then use a mortgage to pay for the rest of the house. Then it’s all yours!
What Types of Mortgages Can You Get?
There are two main types of Mortgages that you can use to buy your first house, these are:
With repayment mortgages you pay back a bit of the loan and a bit of interest every month.
Monthly payments are interest-only mortgages a usually a lot lower than with Repayment Mortgages. This is because you pay back the interest each month and only pay back the original loan at the end of the mortgage term.
Are The Different Types of Mortgage Deals?
There are a few different types of mortgage deals that you need to know about:
Fixed-Rate Mortgages are really straight forward you just pay the same interest rate until the end of the mortgage.
With Tracker Mortgages your monthly mortgage payments can change quite often. The interest rate you pay follows (tracks) the Bank of England base rate. So the interest you usually pay is the Base Rate from the Bank of England and your mortgage rate.
Discount Mortgages are like Black Friday sale mortgage deals. You get a little discount on the interest rate of a tracker mortgage.
If you've been saving for quite a while and have quite a bit of money in your savings account, an Offset mortgage might be perfect for you. These mortgages use the money that you have in a savings account to reduce the amount of the loan a.k.a mortgage that you pay interest on.