WHAT IS MORTGAGE ?
To understand and manage our financial matters in the best way possible, we need to take help from outside, but more importantly, we need to understand some of the concepts related to our finances. There are a lot of financial terminologies and concepts which seem simple and easy to us but are a little complex in nature. This piece of article will help in understanding the concept of Mortgage in UK.
What is a Mortgage?
Let us start understanding the concept of mortgage in UK in a layman’s language. A mortgage is known as a loan that is used to buy a specific piece of property. The buyer of the property makes use of the funds (mortgage) that is borrowed from a bank or other financial institution and provides it to the seller of the property in exchange for the property.
Thus, a Mortgage is a modern way out that keeps you from spending a large sum of money in one go. To let people, buy a property of their choice, financial institutions and lenders like banks come on the forefront. Let us now see how the system of mortgage works.
Working of Mortgage
When a person lends a mortgage, both parties fix the rate of interest, the period in which the repayment will be made, on the basis of the principal amount. The borrower pays an extra amount of funds to the lender in form of the interest. A mortgage is therefore useful for both the parties, i.e., the borrower as well as the lender.
Types of Mortgages
- The most common type of Mortgage is a Repayment Mortgage. As the name suggests, the borrower pays back to the lender in parts along with the decided amount of interest every month.
- Another one is an Interest-only Mortgage, in which the borrower pays only the decided amount of interest each month and when the mortgage term period gets over, the borrower returns the principal amount to the lender in one go.
- Other sub-categories of these types include Discount Mortgage, Offset Mortgage, Fixed-rate Mortgage, etc.
