Whether buying a home for the first time or up or downsizing, you’re likely to need a mortgage. Some people might be in the position to buy a property in full using their own cash, but most need a mortgage.
So, what is a mortgage and how does it affect the way you buy a property?
Mortgages are a way of borrowing money to buy or refinance a property. Effectively, it’s a type of loan and one that is specifically for property.
The loans are repaid over long periods, often 25 years or more. Mortgages spread out the cost of buying a home in simple terms.
Mortgages are available via financial institutions known as ‘lenders’. They are often banks and building societies but other institutions offer mortgages. As well as the amount borrowed, the lender adds ‘interest’ and sometimes fees onto the mortgage. All of the costs need paying back over time.
The lender also secures or guarantees the repaying the loan by placing a charge or ‘security’ to the title of the property. This means that if the mortgage isn’t paid, they can sell your property.
Remember, the property doesn’t belong to you until every penny of the mortgage, interest and any additional fees are paid!
As we’ve mentioned, financial institutions (or lenders) provide mortgages. And there are ways in which you can access one. You can:
Whether you are a first-time buyer or buying a property, you will need a mortgage if you cannot pay for it in full. When buying a property, it’s always best to make sure you have a ‘mortgage in principle’, which is often called an ‘agreement in principle’.
These agreements give you an understanding of how much you can borrow to buy a property. It also tells the estate agent that you are in a financial position to buy and how much you can afford.
If you are seriously looking to buy a property, it’s best to get your agreement in principle before you start searching. Without it, you could be looking at properties out of your price range. And if you see a property you like and can afford, not having your agreement in principle could slow the process. It could mean you miss out on the purchase.
The short answer is ‘no’. A remortgage is specifically for arranging a new deal on an existing property. If you are buying another property – to upsize or downsize for example – you’ll need a new mortgage. You should apply in the same way, requesting an ‘agreement in principle’.
If you fail to repay your mortgage, your property is at risk. As the lender effectively owns a proportion of the property, they have the right to repossess the house if you fail to pay. Should you hit unexpected difficulties, it’s always best to speak to your lender to ask about your repayment rather than ignoring it.
If you’d like to know more about the mortgage process, you can speak to the Jill Moore Select Property team today.