Mortgages enable people to buy homes and change their lives. I remember as a child being intrigued by the word and wondering what it meant. There’s an argument for financial education in schools and at home straightaway. So I am doing my small bit and outlining what to think about before you take one out. The more clued up you are in advance the less likely it is that you will have a mis-sold mortgage situation.
Definition of a mortgage
A mortgage is simply a loan taken out to buy a property or land. The loan is secured against the value of your home until it is paid off. As a former debt counsellor, it used to surprise me how many people thought the security was theirs when actually it is the lender’s protection. It means that if you do not make the payments, your home can be repossessed.
I am so pleased that people buying homes are now asked to look at how much they can afford. When I was counselling people in financial crisis, it was obvious that so many had over-stretched leading to the inevitable collapse further down the line. The Money Advice Service has an affordability tool so you can work out what is realistic for your individual circumstances.
If you are a first time buyer, really reflect on the other costs involved in owning a home from council tax, fuel and water bills, insurance and maintenance.
What lenders need from you
Lenders need to trust that you want to make the payments and can do so. That is what you would want if you were lending money at a friend or family member too. It makes absolute sense. So get together details of your income and expenditure and outline any debts you have too.
Where can you get a mortgage?
Banks and building societies offer a range of mortgages. The alternative is to seek the advice of a mortgage broker or independent financial adviser. They should tell you about their charges and whether they look at the whole market or just at a specific range of lenders.
It is possible to take out an interest-only mortgage but this does come with risks attached and may be the very thing that leads to you having to make a mis-sold mortgage claim in the future.
Very few of us are financial experts and the purchase of any home is a big one. Take good advice and do your own research too before committing to a loan that usually takes decades to clear.