Hopeful home buyers - you’re probably pretty familiar with the term ‘mortgage’, but beyond what your parents and estate agents tell you, do you know what it actually means and how this financial product can help you buy that dream home?
For most people, a house is their biggest-ever purchase! And it’s easy to see why with the average UK House price sitting around £300k according to the ONS.
For most of us, a mortgage is our only way to take that first step onto the housing ladder so it's handy to know what they are and how they work!
Here’s a short and snappy overview but check out our longer blog post for all the deets.
Basically, a mortgage is a loan that you can get from a bank or building society (the lender) to buy a property. It’s a type of secured loan (soz, more jargon!), because the loan is secured against the property you’re buying. Let’s break this down…. The lender is facing a risk that they lend you a huge amount of money which you then can’t pay back to them. So, to protect themselves, if you’re unable to pay back the loan, the lender can actually sell your home as a way to get their money back. This sounds a bit scary, we get it, but hopefully, you’ll never be in this position.
But what if you fell ill or had an accident that meant you couldn’t work? How would you pay all your bills, including your mortgage? That’s where income protection insurance can help! We hope this never happens, obvs, but it’s always good to have that safety net, just in case!
Another way a lender reduces their risk is by asking that you contribute to the property price too. This is called a deposit (we’re pretty sure you’re heard this phrase too). You need to pay at least 5% of the property price (which is still £15k on the £300k price tag, so not exactly pocket change), and the bank or building society will lend you the rest – the 95%. You then pay back the 95% over time (could be 25, 30, or even 40 years!).
So, there you have it – now good luck with that Rightmove scrolling!