A mortgage is pretty much just a large loan that you use to buy property or land.
Now, most mortgages last for 20 to 30 years, this is called the “term”, and your loan is secured to your property or land until the mortgage is fully paid off.
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 is called repossession.
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 bam, it’s all yours!
What Types of Mortgages Are There?
There are two main types of Mortgages, these are:
Repayment Mortgages – Where you pay back a bit of the loan and a bit of interest every month.
Interest-Only Mortgages – Where you pay back the interest each month and only pay back the original loan at the end of the mortgage term.
Now, there are a few different types of mortgage deals that you need to know about:
Fixed-Rate Mortgages – These are really simple, you just pay the same interest rate until the end of the mortgage.
Tracker Mortgages – 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 – You get a little discount on the interest rate of a tracker mortgage.
Offset Mortgages – These 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.