If you wish to buy a home you may be able to borrow money to do this. This is called a mortgage. The loan is for a fixed period, called a term and you have to pay interest on the loan. If you do not keep up the agreed repayments, the lender can take possession of the property. There are several types of mortgages available, the most common ones are described below:
- Repayment mortgage - This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.
- Interest only mortgage - With this type of mortgage, you pay interest on the loan in monthly instalments to the lender. Instead of repaying the loan each month, you pay into a long-term investment or savings plan which should grow enough to clear the loan at the end of the mortgage term. However, if it doesn't grow as planned, you will have a shortfall and you will need to think about ways of making this up.
- Islamic mortgage - With an Islamic mortgage, none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.
A mortgage could be available from a number of different sources. Some of the available options are:-
- building societies
- insurance companies. They only provide endowment mortgages
- large building companies might arrange mortgages on their own new-build homes
- finance houses
- specialised mortgage companies
To ensure you get the best deals when applying for mortgages, it is worth checking the following websites:
They search the whole market including top mortgage providers like C&G, Abbey, Nationwide and Chelsea Building Society for free.
Last updated: 23rd September 2020