Try Explaining Your Mortgage To Someone

Category: Finance, Mortgages.

Let me ask you a question: When you think of mortgage, what are the first ideas that come to your mind? It is incredible how different people come up with such varying explanations for the same thing.

If you ask two people that question, you could quite happily end up with two different answers, simply because there are actually a good number of types of mortgage loans out there. How can we best go about classifying these various mortgage loans? The important word, really, is" loan" . I am sure there is a way to do this. A lot of people just casually drop the word in everyday use, but that s effectively what it is. If you ask me, you can t put it more simplistically. The" mortgage" part means, for the context we re looking at, that the money they loan to you has a pretty large catch attached to it: if you don t pay up, they get your house.

The fact is that if you want to secure a mortgage, you are in effect, putting your house at risk. It is not all that different from looking for a regular loan. When you have decided to go in for a mortgage, shopping around is essential. The sorts available vary from legal system to legal system( so basically country to country) , but in the long run they all boil down to you having to pay back the amount you borrowed over a long period of time with some interest. This means that you don t have to worry about the interest changing from month to month. Interest rates are always in flux, but they won t be if you get a fixed rate mortgage. So you won t suddenly find yourself unable to afford the repayments.

Some lenders provide a combination of both. Alternatively you could try an" adjustable rate" mortgage( which has the interest rate change over time) . The actual rate itself can vary, but that s generally just based on what creditor you go with( which in turn can be affected by your credit history) . The" capital" , or amount you were initially given, clearly has to be paid back to the creditor at some point, but some types of mortgage loan such as" lifetime mortgages" (sometimes called" equity release" ) don t have to be paid back until you die. One aspect that can definitely change between mortgage types is how and when you re expected to repay it. What happens here is that your house is as good as sold to the lender. Then the creditor acquires it completely.

However, you continue to live there till you die. This kind of a loan targets retired homeowners. And it s unlikely that you ll end up with the same value of loan as you would if you actually did sell your house. You have to be a certain age to avail of it. But it does have the added benefit of giving retired home owners the chance to live in their own home in relative comfort for the rest of their lives. Try explaining your mortgage to someone.

So: interest rates and variability, how and when it has to be repaid( not to mention the legal aspects of the whole loan) are all ways in which mortgages can vary. This may not seem too difficult at first glance. It is a fairly tricky thing to do. But just try it sometime and see.

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