Introduction to Mortgages for First Time Buyers

Buying your first home is an exciting but nerve-wracking time. There is a lot to take in and understand. So, bearing in mind how important it is to get things right, we thought that a series of articles specifically addressing the concerns and queries of first time buyers would be helpful. The topics that we cover in this series are:

What is a mortgage?

First things first, it’s worth remembering that a mortgage is, in essence, just a loan. What makes it slightly different to other loans that you may take out, though, is that it:

  • Usually runs for a longer  period – 25 years is a common mortgage term
  • Is secured against your property

What does that second point mean? Well, it means that in return for lending you money to buy the property, a lender protects themselves by putting a charge on it. This means that in the event you cannot, or simply stop, paying your monthly payments, they have the right to repossess the property, sell it, and recoup their money.

How does a mortgage work?

We’ll cover this in more detail over the next few articles, but in summary once a mortgage policy starts it is broken down into these components:

  • Deposit – This is the initial payment you pay and is not included in the capital amount you borrow.
  • Capital – This is the amount of money you borrow.
  • Interest – This is the amount your lender charges you for borrowing the capital until it is paid. Depending on the type of deal you choose, this may be charged at a variable, fixed or capped rate.

You then pay back the interest and capital to the lender, usually on a monthly basis, until the loan is paid off. The usual term is 25 years, but it can be shorter or longer depending on your requirements and circumstances.

What happens if I can’t pay my monthly payments?

It’s important to note that throughout the length of the mortgage policy, the loan is secured against the property you’ve bought. This means if you can’t afford to make your monthly payments, your lender will have the right to repossess your home and sell it to recover the amount you still owe. Plus, you need to be aware that if they sell your home for less than the outstanding amount, you still owe them the difference.

It is very important, therefore, to only borrow what you are sure you can afford to repay on a monthly basis. And it’s critical that you pick the right sort of mortgage from the start…

To find out more about mortgages for first time buyers, please see the other articles in this series.

Other articles in this series written for first time buyers…

 

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