Housing with Hannah - Part Eight | What is a mortgage?
Before deciding to buy a house although I had some idea of what a mortgage was and how it worked I have learnt that actually, I knew very little.
When I met the first person I saw about a mortgage (she was a mortgage advisor), she asked me if I understood how a mortgage worked. I said I thought so, but thankfully she explained it all to me like I was dumb. I know I'm not exactly and idiot but as all this was so new to me I'm glad she went through it how she did.
Basically a mortgage is a large amount of money that you borrow over a long period of time. Sounds depressing, but it enables you to buy something that will one day officially be yours. Although I'm against loans in general...without this I'd for sure never own a house! There are lots of calculators online to help you work out how much money you should be able to borrow based around your income and outgoings. This also determines the amount of years you'll be able to pay your mortgage back over. The shorter period of time you can pay over in theory the better as you'll pay less in interest.
There are lots of different types of mortgage. Most places now only let you pay back the loan amount and interest - a repayment mortgage. Some mortgages you just pay the interest and have to pay the lump sum at the end of the mortgage period. The way you pay it back also comes in different forms. There is fixed rate or variable rate. Basically if you're anything like me and like to know exactly what you're paying each month you want a fixed rate. This means you pay the same amount every month for a set period of time. Other people who may be happy to have a less assured monthly payment could go with a variable rate for example a tracker mortgage. This changes with the bank of England base rate.
My mortgage works out at about two hundred pound a month, which is nothing considering renting somewhere decent would probably set me back double that. However because of how cheap it is, once I'm all sorted I will try and pay back more a month if I can afford to...this will decrease the term the mortgage is paid over and ultimately mean I pay less in the long run. This is something to watch out for however as some banks sting you for paying back early. My mortgage does have early repayment charges but these only come into affect after paying more than 10% extra of your mortgage back. As I only plan on paying back maybe an extra hundred a month this will not come into play with me.
When opening a mortgage account some banks like to charge you. Depending on the cost of the house this is sometimes worthwhile doing as you pay less monthly in this case. However, again because my property is cheaper the money saved over the two year fixed term was a lot less than the heafty nearly thousand pound upfront fee.
I would definitely recommend seeing an independent adviser as they can tell you about lots of different options to you and not just the one like if you go to the bank. There are lots of different things you can decide to prioritise to work out what will work best for you but I just decided to go for what would I pay over the two year fixed term in total. From this I looked at the best three deals and went from there. Some places have certain requirements, for example being in your current job for six months etc so it's just a matter of finding something that will work for you.
In my opinion, your mortgage is definitely worth shopping around for and taking time over. After all it's not something that goes away quickly!
When I met the first person I saw about a mortgage (she was a mortgage advisor), she asked me if I understood how a mortgage worked. I said I thought so, but thankfully she explained it all to me like I was dumb. I know I'm not exactly and idiot but as all this was so new to me I'm glad she went through it how she did.
Basically a mortgage is a large amount of money that you borrow over a long period of time. Sounds depressing, but it enables you to buy something that will one day officially be yours. Although I'm against loans in general...without this I'd for sure never own a house! There are lots of calculators online to help you work out how much money you should be able to borrow based around your income and outgoings. This also determines the amount of years you'll be able to pay your mortgage back over. The shorter period of time you can pay over in theory the better as you'll pay less in interest.
There are lots of different types of mortgage. Most places now only let you pay back the loan amount and interest - a repayment mortgage. Some mortgages you just pay the interest and have to pay the lump sum at the end of the mortgage period. The way you pay it back also comes in different forms. There is fixed rate or variable rate. Basically if you're anything like me and like to know exactly what you're paying each month you want a fixed rate. This means you pay the same amount every month for a set period of time. Other people who may be happy to have a less assured monthly payment could go with a variable rate for example a tracker mortgage. This changes with the bank of England base rate.
My mortgage works out at about two hundred pound a month, which is nothing considering renting somewhere decent would probably set me back double that. However because of how cheap it is, once I'm all sorted I will try and pay back more a month if I can afford to...this will decrease the term the mortgage is paid over and ultimately mean I pay less in the long run. This is something to watch out for however as some banks sting you for paying back early. My mortgage does have early repayment charges but these only come into affect after paying more than 10% extra of your mortgage back. As I only plan on paying back maybe an extra hundred a month this will not come into play with me.
When opening a mortgage account some banks like to charge you. Depending on the cost of the house this is sometimes worthwhile doing as you pay less monthly in this case. However, again because my property is cheaper the money saved over the two year fixed term was a lot less than the heafty nearly thousand pound upfront fee.
In my opinion, your mortgage is definitely worth shopping around for and taking time over. After all it's not something that goes away quickly!
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