The complex world of mortgages – explained

Mortgage wrote on a laptop

For the many Brits who own their own home, getting there would have been impossible if it wasn’t for the world of mortgages. But what exactly are these products, and how can they help you get on the housing ladder? This article will explain.

What is a mortgage?

Simply put, a mortgage is a long-term and well-established type of loan which uses the property you buy as security for the debt. What this means is that if you later default on the debt and can no longer pay it, the mortgage lender will have the right to sell your property to clear the balance.

Until relatively recently, mortgages were very widely available. They were in some cases available with no deposit, and sometimes you even got significant cashback for taking one out – known as a 120% mortgage or similar. However, the lack of proper assessments as to whether or not people could repay their loans led in part to the financial crash – which saw many people lose their homes.

Benefits of a mortgage

The primary benefit of a mortgage is that they tend to be available at low interest rates, which stands in contrast to other loans. As mortgages are spread out over periods spanning decades, they offer cost-effective long-term borrowing, and you can hedge against the risk of going out of work by opting for insurance policies for sickness, death and more. 

Can a mortgage trap you?

Mortgages are in many ways good, as they offer a competitive and accessible way to combine your basic need for shelter with an investment opportunity. However, if for some reason you want to move quickly, you’ll have to factor in the mortgage – and if house prices are low, there’s a risk you won’t get back much of your deposit. Sometimes, cutting your losses is the best course of action, especially if your move can’t be put off.

National Property Trade can buy homes at close to their market value in as little as seven days. Find out more here.