In its simplest and most easily identifiable form a home loan is borrowing money using property as a security, or a loan secured upon a property it lives in the family of loans and is a type of secured loan. The most known use of a home loan is a mortgage used to purchase a property.
A home loan allows you to borrow a large amount of money in order to buy a home or property which is secured against the value of that property subject to the lenders terms and conditions, you agree to pay the mortgage amount back to the lender at the end of a specified term.
As the home loan is secured on your property then your home may be at risk if you do not keep up with the payments on a loan or or mortgage secured on your property.
A home loan mortgage can be broken down into four main parts:
Capital – This is the total amount of the loan that you borrow.
Interest – This is the charge for borrowing money. Worked out as a percentage of the capital.
Term – This is the period of time that the money is borrowed over, and needs to be repaid by.
Repayments – These are the regular payments you make throughout the term of the mortgage.
The home loan mortgage is created by a legal charge on the property. The charge is noted by the land registry on your deeds and confirms that the property has been pledged to the lender as security for the mortgage loan.
Home loan mortgages are repayable normally with a term from 5- 25 years although some lenders will allow the mortgage to be over a longer term. The total amount that you borrow is called the ‘capital’, and you will also have to pay back capital and the interest charged to you by the lender.
The title deeds are held by the lender but when the purchase monies are paid over to the vendor, usually through a solicitor, the mortgagor becomes the owner of the property. The legal charge is supported by a loan agreement between the two parties which sets out the terms of the loan, the responsibilities and undertakings.
You have two options - repay the capital and the interest together within your monthly mortgage payment - this is commonly known as a ‘repayment’ mortgage, or you could just pay each month the interest to the lender ‘interest only’, and put in place an investment vehicle to build up enough capital money to repay the lender in full at the end of the term.
When looking at how much money a lender is willing to let you borrow, there are two factors to take into account.
First of all, they will want to know what single or joint income you have, most lenders will work on income muliples and these vary from lender to lender. A rough guide is three times a single salary or two and three quarter times a joint salary. Most home loan mortgage lenders have the same or similar multiples they use but shopping around will ensure you get the best available mortgage multiple.
Most lenders will also take into account the amount that you are looking to borrow, and the total value of the property, along with your credit status and employment type.
Ensure that you have fully decided how much you can afford per month. You need to fully consider how much money you have coming in, and how much money you spend each month. This will give you an idea how much you can afford to pay a lender each month for your mortgage.
You should also consider whether your income is actually enough to be to afford the property and the mortgage you are after. We all would love to live in the best house possible but we have to work within our budget. A mortgage and the purchase of a house are the largest and normally the longest commitment we normally have , remember 25 years is a long time to be paying that mortgage. Getting a mortgage can be complicated affair. If you are unsure about which mortgage to go for, then you should seek some financial advice.
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