Insights, Mortgages & Renting

What Is a Mortgage? The Complete Beginners Guide

flik eco finance personal what is a mortgage

What is a mortgage? This is a question that many people ask when they are looking to buy their first home. A mortgage is a loan that is used to purchase a home. It is important to understand what a mortgage is and what the different terms mean before you decide whether or not this type of loan is right for you. In this blog post, we will discuss what a mortgage is, the different types of mortgages available, and how to get the best deal on your mortgage!

What is a Mortgage?

A mortgage is a loan that is secured by property, usually a home. The borrower makes payments to the lender over time, and the lender holds the title to the property until the loan is paid in full. Mortgages are typically used to purchase homes, but they can also be used to refinance an existing loan or to borrow against equity in a home.

Mortgages are typically repaid over a period of 15 to 30 years, although shorter terms are available. The interest rate on a mortgage can be fixed or variable, and it is generally lower than the interest rate on a credit card or other unsecured loan. Mortgage payments usually include both principal and interest, and they may also include taxes and insurance.

Mortgages can be obtained from banks, credit unions, mortgage brokers, and other financial institutions. It is important to shop around and compare rates before choosing a lender.

If you are considering a mortgage, there are a few things you should know:

  • The interest rate on your mortgage will affect your monthly payment amount and the total interest you pay over the life of the loan.
  • Your monthly payment may also include taxes and insurance, which will add to the total amount you pay each month.
  • You will need to have enough money for a down payment, typically 20% of the purchase price of the home.
  • Your lender will require that you have homeowners insurance in place before they will close on the loan.
  • You may also be required to purchase private mortgage insurance (PMI) if you are not putting 20% down.
  • Mortgages typically have closing costs, which can range from a few hundred dollars to several thousand.
  • You will need to have money available for these costs in addition to your down payment and monthly payments.

What Are The Different Types of Mortgage Deals?

There are two main types of mortgage deals: fixed-rate and variable-rate.

With a fixed-rate mortgage, your interest rate stays the same for the entire length of your mortgage term. This means you know exactly how much you'll need to pay each month, making it easier to budget. The downside is that if interest rates fall, you'll miss out on any savings.

With a variable-rate mortgage, your interest rate can go up or down over the course of your mortgage term. This means your monthly payments could increase or decrease, depending on what happens with interest rates. The upside is that if rates fall, you'll save money on your monthly payments.

So which type of mortgage deal is right for you? It depends on your personal circumstances and what you're looking for in a mortgage. If you want the stability of knowing what your monthly payments will be, a fixed-rate mortgage might be the best option. But if you're willing to take a bit of a risk in hopes of saving money, a variable-rate mortgage could be the way to go.

There are dozens of different mortgage types available, but some of the most popular include:

  • Conventional mortgages: These are standard mortgages that aren't backed by the government.
  • FHA loans: These loans are insured by the Federal Housing Administration and typically have more relaxed credit requirements than conventional mortgages.
  • VA loans: These loans are available to veterans and active military members, and they're often easier to qualify for than other types of loans.
  • Adjustable-rate mortgages (ARMs): With an ARM, your interest rate is fixed for a certain period of time before it adjusts up or down. This can be a good option if you expect your income to increase over time or you plan on selling your home before the interest rate adjusts.

Whats The Difference Between Repayment & Interest Only Mortgages?

There are two main types of mortgage repayment methods: repayment and interest-only.

Repayment Mortgages

With a repayment mortgage, your monthly payments go towards both the principal (the amount you borrowed) and the interest. This means that your balance will get smaller each month, and you'll eventually pay off the entire loan.

Interest-Only Mortgages

With an interest-only mortgage, your monthly payments only go towards the interest. This means that your balance won't decrease over time, and you'll still owe the full amount of the loan when it comes due. Interest-only mortgages typically have lower monthly payments than repayment mortgages, but they can be more risky since you're not actually paying down any of the money you borrowed.

So which type of mortgage is right for you? That depends on your personal circumstances and what you're looking for in a mortgage. If you want the stability of knowing what your monthly payments will be, a repayment mortgage might be the best option. But if you're willing to take a bit of a risk in hopes of saving money, an interest-only mortgage could be the way to go.

How Do You Qualify For A Mortgage?

There are a few things you'll need in order to qualify for a mortgage:

  • A down payment: This is typically 20% of the purchase price of the home, though some loans may require as little as 0% down.
  • A good credit score: You'll need a credit score of at least 580 to qualify for an FHA loan, and a score of at least 620 to qualify for a conventional mortgage.
  • Steady employment: Lenders will want to see that you have a steady job and income before they give you a loan.
  • Debt-to-income ratio: This is the amount of debt you have compared to your income. Lenders typically want to see a DTI ratio of 36% or less.

If you don't meet all of these qualifications, don't worry - there are still options available. You may be able to get a co-signer on your loan, or look into government-backed loans like FHA or VA loans.

How Much Down Payment Do You Need For a Mortgage?

The amount of money you'll need for a down payment on a house depends on the type of loan you get. For conventional loans, 20% is typically the minimum, but there are also loans available with as little as

three percent down. If you're looking to buy a home and have bad credit, your down payment might be higher. The same goes if you're buying an investment property or vacation home. But no matter what kind of mortgage loan you're getting, know that a larger down payment means a lower interest rate and vice versa.

What's the Interest Rate?

The interest rate is what you'll pay each year to borrow the money for your home. It doesn't include things like taxes and insurance, which you'll also have to pay. The average interest rate for a 30-year fixed mortgage is around four percent, but it can be higher or lower depending on the lender and your credit score.

What Are The Average Interest Rates on Mortgages?

The average interest rate on a 30-year fixed-rate mortgage was recently at its lowest point in history, around three percent. Rates are expected to begin rising again soon, but they're still relatively low compared to historical norms. That means it's a good time to buy a home or refinance your existing mortgage.

How Does Interest Work on Mortgages?

Mortgage interest is the price you pay for borrowing money. When you take out a mortgage, you agree to pay back the loan, plus interest. The lender uses your payments to cover their costs and make a profit.

  • The amount of interest you pay depends on three things:
  • The size of your mortgage loan
  • The term of your mortgage
  • The interest rate

The longer the term of your mortgage, the more interest you will have to pay. This is because lenders charge higher rates for longer terms. They do this because they are taking on more risk by lending you money for a longer period of time.

What Are Mortgage Points?

Mortgage points are fees that you pay to the lender at closing in exchange for a lower interest rate. One point equals one percent of the loan amount. So, if you're taking out a $200,000 loan, one point would cost you $2000. Mortgage points can help you save money over the life of your loan, but they're not right for everyone.

How Does Your Credit Score Affect a Mortgage?

Your credit score is one of the most important factors in determining whether or not you’ll be approved for a mortgage. A high credit score will give you a better chance of being approved for a loan with favorable terms, while a low credit score could make it difficult to get approved for a loan at all.

If you’re thinking about applying for a mortgage, be sure to check your credit score and take steps to improve it before you apply. A higher credit score will give you a better chance of being approved for a loan with favorable terms, which could save you money over the life of your loan.

How Do You Apply For a Mortgage?

The application process for a mortgage can vary depending on the lender, but there are some general steps that remain the same. You'll need to provide information about your employment, income, debts, and assets. The lender will also pull your credit history to get an idea of your financial history. Once they have all of this information, they'll be able to determine how much money they're willing to lend you and what interest rate they'll charge.

You can apply for a mortgage through a bank, credit union, or online lender. It's best to compare offers from multiple lenders before making a decision. Be sure to carefully read over the terms and conditions of each loan before signing anything.

What Is The Full Mortgage Application Process?

Mortgage application timelines can vary depending on the lender, but most follow a similar process. Once you've found a property and have an accepted offer, it's time to begin the mortgage application process.

The first step is to complete a loan application form. This will include basic information about you and your finances, including your employment history, income, debts, and assets. You'll also need to provide information about the property you're looking to purchase.

Once your loan application has been submitted, the lender will order a home appraisal to determine the value of the property. They'll also pull your credit report and verify your employment and income. If everything looks good so far, they'll issue what's called a pre-approval letter.

This is not a guarantee that you'll be approved for the loan, but it does show that the lender is willing to work with you. The next step is to find a property and make an offer. If your offer is accepted, the final step is to complete the loan process and close on the mortgage.

Closing on a mortgage can take anywhere from 30-60 days. Once everything is finalized, you'll officially be a homeowner!

What Other Fees Come With a Mortgage?

In addition to your monthly mortgage payment, you'll also have to pay property taxes and homeowners insurance. Your lender will require you to escrow, or set aside, these funds so that they're available when the bills come due. You may also have to pay for private mortgage insurance (PMI) if you put less than 20% down on your home. All of these costs are rolled into what's called a PITI payment: principal, interest, taxes and insurance.

What Happens If I Can't Make My Mortgage Payment?

If you can't make your mortgage payment, the first thing you should do is contact your lender. They may be able to work out a forbearance agreement with you, which would allow you to make smaller payments for a temporary period of time. You'll still owe the full amount of your mortgage, but this can help you get back on track if you're experiencing a financial hardship.

How Do I Pay My Mortgage?

You typically have two options for paying your mortgage: by mail or electronically. If you pay by mail, you'll send a check or money order to your lender's address. Be sure to include your loan number on the payment so that it gets applied to the right account. You can also set up automatic payments through your bank's online bill pay service or by signing up for autopay with your lender. This will ensure that your mortgage payment is made on time each month without fail.

Paying your mortgage on time is important because if you're even a few days late, you'll be charged a late fee. Worse, if you miss enough payments, your lender could start the foreclosure process. This is when they legally repossess your home in an effort to recoup what you owe on your loan.

What Is Mortgage Refinancing?

Mortgage refinancing is when you take out a new loan to pay off your existing mortgage. There are several reasons why people choose to refinance their home: to get a lower interest rate, to change the term of their loan, or to access equity in their home.

What Happens If You Can't Payback Your Mortgage?

If you can't pay back your mortgage, the lender will likely foreclose on your home. This means they'll take ownership of the property and sell it in order to recoup their losses. The foreclosure process can be lengthy and stressful, so it's important to do everything you can to avoid it. If you're struggling to make your mortgage payments, talk to your lender about your options. They may be able to work with you to create a more affordable payment plan.

How Many Mortgages Can One Person Have?

There's no limit to the number of mortgages you can have, but most people only have one or two. The reason for this is that each mortgage takes up a lot of money, and having more than two can be difficult to manage. That being said, if you have the income and are able to make the payments, there's nothing stopping you from having as many mortgages as you want. Just be aware that it may be tough to keep track of them all!

What is Mortgage Pre-Approval?

Mortgage pre-approval is when a lender gives you a letter stating how much of a loan you’ll be able to qualify for, based on an evaluation of your financial history. This can give you a major advantage when shopping for a home because it helps you know what price range to stay within.

In order to get pre-approved for a mortgage, lenders will look at your credit score, employment history, and your current debts and assets. They'll also ask for information about any other properties you own or have owned in the past. Based on this information, they'll give you a letter that says how much of a loan they're willing to offer you.

It's important to note that getting pre-approved for a mortgage doesn't mean that you're actually approved for the loan. Once you find a home and make an offer, the lender will still need to approve your loan before you can officially close on the property.

Getting pre-approved is a good first step in the mortgage process, but it's not the only step. In order to get approved for a loan, you'll also need to provide documentation about your income, employment, debts, and assets. The lender will use this information to determine whether or not you're a good candidate for a loan.

If you're thinking of buying a home, it's a good idea to get pre-approved for a mortgage before shopping around.

What is Mortgage Pre-Qualification?

Mortgage pre-qualification is an initial evaluation of a potential borrower's ability to obtain a mortgage. Lenders will look at factors such as employment history, credit score, and debt-to-income ratio to determine if the borrower is a good fit for a loan.

Pre-qualifying for a mortgage is not the same as getting pre-approved for a loan. Pre-approval means that the lender has fully underwritten the loan and is ready to offer financing. Borrowers who are pre-qualified may still need to go through the full underwriting process before they can be approved for a loan.

What is a Mortgage in Principle?

A mortgage in principle is an agreement between you and a lender in which they agree to lend you a certain amount of money towards the purchase of a property.

The mortgage in principle is not a binding agreement, but it does give you an indication of how much money you could potentially borrow from a lender. It's important to remember that the amount you're offered in principle may be different from the final amount you're offered when you apply for a mortgage, as lenders will take into account your income, employment status and credit history when making their decision.

What Happens To Your Mortgage When You Move?

If you're planning on moving house, there are a few things you need to consider when it comes to your mortgage. Here's what you need to know.

When you take out a mortgage, the agreement is based on the property being your main residence. This means that if you move house, you'll need to let your lender know. They may ask for proof of where you're living, so it's important to keep them in the loop.

Depending on your situation, there are a few different options available to you. You may be able to transfer your mortgage to your new property, or 'port' it as it's known. This can be a good option if you're moving to a bigger house and need to borrowing more money.

If you're downsizing or moving to a cheaper property, you may be able to pay off your mortgage early. This is known as 'redeeming' your mortgage. You'll need to speak to your lender about this and there may be fees involved, so it's important to get advice before making any decisions.

Moving house can be a stressful time, but if you're prepared and know what to expect then it can all run smoothly. Just make sure you keep your lender up-to-date with your plans so they can help you out along the way.

How To Calculate How Much Mortgage You Can Afford?

If you're like most people, you probably don't have a ton of extra cash sitting around to buy a home outright. That's where mortgages come in. A mortgage is a loan that helps cover the cost of your home. But how do you know how much mortgage you can afford?

Here are a few things to consider:

  • Your income: This is probably the most important factor in determining how much mortgage you can afford. Lenders will look at your income to get an idea of how much money you make each month and how stable your job is.
  • Your debts: Do you have any other debts that you're currently paying off? Your lender will want to know what kind of debt load you're already carrying.
  • Your credit score: Your credit score is a measure of your financial health. The higher your score, the more likely you are to qualify for a lower interest rate on your mortgage.
  • The type of home you're looking to buy: Are you looking for a single-family home, a condo, or a co-op? The type of home you're interested in will affect how much mortgage you can afford.

Once you've considered all of these factors, you can start to get an idea of how much mortgage you can afford.


About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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