What is a Mortgage?
A mortgage is nothing more than a long term loan that is secured against the value of a property. 'Secured' means that if you are unable to repay the loan (in part or full), the mortgage company can sell the property in order to recoup its loan.
Although a mortgage is a loan it is often more complex because there are many different ways that the payment of the interest and repayment of the principal can work. This is why it is necessary to investigate thoroughly how to get the best sort of deal.
Never forget that a Mortgage for most people is the biggest financial decision of their lives.
If you want to learn more about Mortgages read on where you will see the basic facts.
1. The Amount of Monthly Payments You Can Afford
This is obviously the single most important question. Everyone's financial status is different, but for the majority of people how much they can afford on a monthly basis relates directly to their monthly take home pay.
Some people can earn extra money each year from a annual bonus but mortgage companies usually refuse to take these into account as they're never actually guaranteed to be paid. But bonuses can still be used by the mortgage holder to perhaps help with either future monthly payments or to pay back part of the principal.
- The simplest way to decide what you can afford to pay on a monthly basis is to work out what your monthly income is after tax and then subtract all your outgoings
- And then take into account two important factors
- All or part of your monthly outgoings may increase (perhaps you're planning for another child etc)
- Mortgage payments are calculated from Base Rates (the official Bank of England interest rate) which fluctuate over time, sometimes dramatically so
If base rates are at present 4% and they rise to 6.5% over the next few years then you must factor in an increase to your monthly mortgage payments. It is imperative to do your homework on this topic even if you feel that your financial situation or the UK economy in general is likely to remain very stable. Remember a Mortgage is a long term loan so the economic situation of today might be very different from the one in 5 or 10 years time.
