Mortgage Advice Services

A mortgage is a loan which is used to purchase a property and this type of lending has two main characteristics. Firstly, you will be paying this back over a long period, normally anything around the 25 year mark. Secondly, a mortgage is ‘secured’, which means the bank will use your property as security for the money lent.

If you are unable to make repayments on your house, the bank has the right to repossess your home to pay for the money borrowed. In the unfortunate circumstances where your house may be repossessed, the money that the bank gets from the sale of the house may very well not cover the original amount you borrowed. This is why you should ensure you can afford the property in question.

Mortgages tend to vary immensely and the thought that one is like the next is far from the truth. You should carefully consider your current and future financial situation to best gauge how much to borrow and how you intend to pay it back.

A common mortgage advice question: – An interest only mortgage, or a repayment mortgage?

Interest only mortgages – this type of mortgage repayment, won’t actually pay off any of the money you have borrowed, as its title states you are only paying off the interest. So even after paying a £100K mortgage over 10 years, you will still owe £100K.

With an interest only mortgage, the cost is fairly simple to work out. If you borrowed the £100K mentioned above, at let’s say an interest rate of 7%. Then this will cost you £7000 a year, but you must also take into consideration that you will still owe the original £100K.

Repayment mortgages -this is seen as a much more appealing solution to paying off your mortgage. Your monthly payments will not only cover your interest, but will also pay off some of the money you have borrowed. The repayment mortgage will cost you more money per month but you can be glad that you are slowly paying off the money you owe.

When working out the cost of repayment mortgages, it gets slightly more complicated than the interest only mortgage. You’re repayments are calculated on the overall debt and interest charged to you over the agreed term (e.g. 25 yrs). Now, the first few years, the outstanding debt is larger, so the majority of your repayments go towards paying off the interest. As the years pass, you will gradually reduce the original sum that you borrowed and your interest will drop accordingly.