1. What is a mortgage?
A mortgage is basically a contract between two parties where one party (the borrower) takes out a loan from a financial institution or lender, using their property as collateral. This is known as a “secured creditor”. The other party (the lender), in turn, grants the borrower a sum of money (a ‘loan’) in return for repayment of the amount borrowed over a set period of time (typically 30 years). As the term implies, the lender is therefore taking a security interest’ in the property being mortgaged. This is operated by mortgage lenders
2. How does a bank make money?
While banks do not actually lend any money directly themselves, they act as intermediaries between borrowers and lenders. When the borrower defaults on his/her debt, the bank collects the money lent to them by the lender and returns some portion of these funds to the lender. Banks charge fees to both sides of the transaction for acting as brokers in the lending market. These fees are called ‘interest’. So, while banks do not actually lend money, they provide a service that makes loans possible.
3. Why do I need a mortgage?
Banks often require a deposit before giving a loan. If you have savings then a bank may offer you a personal loan. However, if you don’t have savings you won’t be able to borrow anything. In addition, a bank might ask you for something called a “deposit guarantee”. The deposit guarantee is meant to protect the bank against losses resulting from your defaulting on the loan. You should only sign a mortgage agreement if you understand what you are getting yourself into – particularly how much you will need to repay each month.
4.Is it legal to get a mortgage?
In many countries the law requires that borrowers prove their income and assets. A person who doesn’t meet the requirements cannot legally take out a mortgage. In practice however, many people either obtain mortgages without having sufficient proof of income or fail to disclose material facts about their finances. In fact, in some cases, banks will encourage borrowers to go ahead with a mortgage even though they know the applicant is not eligible.
5. Will my credit rating affect my eligibility for a mortgage?
If you have bad credit history your chances of being approved for a mortgage will likely be low. While a credit score is not always indicative of future behaviour, it is a good indicator of whether someone pays back their debts. Therefore, if someone has a poor credit history, they may well pay back their debts late or not at all.
6.Can I get a mortgage on my house?
No! To start with, the house isn’t yours. It belongs to the bank, and they are unlikely to agree to give you a mortgage on it. Even if you did manage to persuade the bank to let you have a mortgage, you would still owe thousands of pounds on top of the original cost of your home. And remember that to get a mortgage, you’ll probably need to put down a minimum 20% deposit.
7.Where do I find a reputable mortgage broker?
There are several ways to find a reputable mortgage broker. Firstly, look for one recommended by friends and family. Another option is to visit your local branch of a major bank. Finally, try searching online for a reputable mortgage broker.