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What is a Mortgage?

Put in the simplest terms, a mortgage is a loan that enables you to purchase a property. Buying property is probably the biggest financial commitment most of us will ever make and most people don’t have the necessary funds available to buy a house or flat outright, which is where mortgages come in. A mortgage allows you to borrow thousands of pounds (with or without a deposit, depending on the mortgage) at a relatively low rate of interest in comparison with other forms of borrowing.

The loan terms (or length time in which the loan needs to be paid) can vary quite a lot. Most people take out mortgages with loan terms of around twenty-five years and it’s quite common to find that monthly mortgage repayments are substantially lower than the amount that would be charged if you were to rent.

All mortgages essentially work the same way - you (the borrower) are loaned the money by your chosen lender (be it a bank, building society or other mortgage specialist). A mortgage contract is drawn up with agreed terms and conditions and the property is used as security for the lender. In other words, if you fail to meet the conditions set out in the mortgage contract (specifically in relation to keeping up to date with the loan repayments), the lender may be able to repossess the property. When the loan has been repaid in full, the title (and therefore the ownership) of the property passes to you).

There are other circumstances for which a mortgage can be used. A second mortgage or remortgage can be taken out on your existing property as a way either reducing your mortgage repayments by way of a lower interest rate or as a form of secured loan if you want to raise finance for other purposes.