Mortgages are types of loan products that are most often used to buy a property of some sort, either for residential or commercial use. These products can be taken out with financial institutions and a variety of specialist mortgage lenders.
Like any other kind of loan a mortgage works by lending you money and then charging you interest on your borrowings until your loan is done. In most cases, given that mortgages are given for such high sums, these loans will last for a good few years (i.e. 25 years). Most mortgages will be repaid via a monthly repayment schedule.
So, when you apply for a mortgage your personal circumstances and financial situation/history are examined by the lender. They will also take into consideration other issues such as how much of the property price you will pay as a deposit or down payment.
This process is vital to the mortgage lender as they use it to work out if you can afford your repayments and also to assess what the likelihood is of your defaulting on your obligations. An impaired credit history, for example, could result in mortgage lenders rejecting your application or charging you higher rates of interest as you will be marked as a higher risk for them.
If your application is approved then the mortgage lender will release the necessary funds so that you can buy the property in question. You will then make regular payments (i.e. once a month) to the mortgage lender according to the type of mortgage that you have taken out.
Some mortgages, for example, will see every payment that you make go towards paying back some of the capital that you originally borrowed and some of the interest that you will be charged. When you reach the end of your mortgage term then you will own your property outright.
An interest only mortgage, however, will put all of your payment towards paying off just the interest on your borrowing. Once your mortgage is done here then you will still have to repay the capital sum that you originally borrowed. Most people will set up some form of investment product to raise the cash to do this.
During the life of your mortgage, although you are technically the property owner, your mortgage provider has a lien on your property. This means that they have the right to repossess your property if you do not stick to your mortgage agreement and make your regular repayments.
There are all kinds of different options open to you when you take out a mortgage in terms of deals and rates. Some people, for example, will simply accept a lender’s variable interest rates which may go up and down according to changes in market interest rates. Others will alternatively look at deals that lower the costs of their payments for specific periods of time such as fixed rates.
It is important to work out what kind of mortgage will suit you best before you apply for one and it is vital to make sure that you can afford a mortgage in the first place. The fact is you could lose the home that you have worked so hard for if you stop making repayments here so do make sure not to overstretch your finances.
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