How Does Your Mortgage Work?

or a little over three years, your authorI worked as a mortgage adviser in the UK, as you may have seen from the homepage of this site. I also have a specialist mortgage qualification which I sat and passed in December 2000.

So although I can't profess to be a world expert, I do have a fairly intimate knowledge of how all this stuff works. So over the next few pages you will see some background information about what will probably be the biggest debt that you ever have!

Due to the size and scale of most household's loan, it is vital to family finances. It may well be your largest monthly expenditure and since most deals run for 20 or 25 years, it will also be where you spend the majority of your lifetime earnings.

What a frightening thought!

Therefore, getting it right and not making a mess of it are massively important. As is ensuring that once you have a property, everything goes well. Losing a home is a scenario that nobody wishes to go through.

Essentially, a mortgage is a debt / loan which is secured against specific property. In the common use of the word, it is secured against your residential property. This loan will have a pre-set term or duration which is established at the outset.

Since the loan is secured, the lender has the right to take back your property and sell it, should you fail to maintain your monthly payments. It is this extra security which enables deals to be at very competitive interest rates. The lender knows that if all else fails, he or she can recover most or all of the debt from your home.

A mortgage will obviously need to be repaid. This may happen in small parts each month, by repaying capital as an element of the monthly payment.

Or, an investment plan may be established to repay the capital in one lump sum at the end of the term. These investment schemes may be a savings plan into a unitised fund, a savings plan into a fund which includes life assurance of some kind or perhaps a pension scheme if there are useful tax advantages.

If you are thinking of buying a property now and are clueless about the workings and world of lending, I suggest that you spend some time reading a few background articles and details before you go and visit a broker or adviser. This extra work will help you immensley and may potentially help you to make a better quality decision that is worth tens of thousands to you.