So what is a mortgage exactly and how does it differ from a loan? In this article we will give you a basic overview of what a mortgage is and a summary of the major differences between them.
A mortgage is a loan that is specifically tied to a property. You usually borrow a percentage of the value of that property and repay the amount you’ve borrowed each month plus the interest charged by the lender. This is called a repayment mortgage. There are also interest only mortgages that require just the interest paid each month and the remaining capital paid at the end of the mortgage term which is typically 25 years.
Homes are often very costly and probably the most expensive thing you will buy in your lifetime. The majority of people won’t be able to purchase their new home outright and therefore need to apply for a loan from a financial lender.
This type of loan is called a residential mortgage. There are also buy to let mortgages for those looking to become a landlord to rent out a property as an investment. Buy to let mortgages are for properties that you don’t intend to live in yourself. You can read about each one in our types of mortgages explained guide.
How Much can I Borrow?
You will rarely be able to get a mortgage for 100% of the value of a property so you will be required to pay a cash deposit. Use our handy borrowing calculator to see how much you are likely to be able to borrow. Always consider the running costs of owning a property and don’t stretch yourself.
If you fail to repay your mortgage, your house could be repossessed by your lender and sold to cover the loan you owe. It is therefore essential that you are sure from the outset that you will be able to afford your monthly repayments. Check out our mortgage payment calculator to work out your likely monthly payments.
How to Get a Mortgage
Now that we have answered the question of ‘What is a mortgage?’ you can research the various mortgage meanings in our mortgage guides and then read about the mortgage process. Or you can simply get in touch with one our expert advisers and we will be happy to help you decide which mortgage best suits your situation.