A mortgage is a loan from a bank or building society which is secured against the property which you are using it to buy. If you default on your monthly repayments the lender can take your home away from you.
A mortgage is usually repayable over 25 years although a longer or shorter-term deal can be organised.
A lender can offer a variety of different mortgage deals with varying interest rates. Some of these will be based on the lender’s standard variable rate which is a rate above the Bank of England base rate. This can be changed by the lender at any time.
A Tracker mortgage also has a variable rate which is linked to the Bank of England base rate. This may last for the length of the mortgage but can sometimes be for a short period at the start of the loan.
You can fix the rate of interest you pay on your loan for a set period of time by having a fixed-rate mortgage. This is usually between one and five years but longer terms are available.
Interest Only or Repayment
An interest-only mortgage is where you repay on a month by month basis just the interest incurred on your loan. The capital is only repaid the day the mortgage ends. This is not without risk as you could end up with a shortfall at the end of the term.
A repayment mortgage is where both the interest and capital is repaid to the lender each month. This way you are guaranteed to have paid off the debt at the end of the mortgage term and you will own the house outright.
These are strongly worded documents which give wide ranging powers to the lender.
A mortgage deed includes a promise to pay. The mortgage offer which you will have received details the terms of the mortgage which are special to you and your circumstances.
Mortgage offers include the principal amount, interest rate, period of repayment, monthly repayments together with any discounts or capped/fixed rates. It may also include penalties for repayment. Your mortgage offer should be kept safe so that you are able to refer to it in the future.
Your mortgage broker, bank or financial adviser will have assisted you with the mortgage product’s suitability. Your solicitor is not a specialist in this field and as such we cannot advise you on the suitability of your mortgage.
If you fail to make your repayments, you must be aware that the lender could take possession of the property (by Court Order unless you consent). The lender can also claim interest, costs and expenses on top of the principal sum outstanding on the mortgage.
To avoid this, it is important to keep up with your payments. There are also some practical observations which you undertake to observe through the mortgage covenants:
- Keep the property insured
- Ensure the property is kept in a reasonable physical order and condition
- Not to let the property without your lender’s consent
- To not make structural alterations without the lender’s consent and accordingly to observe the Town & County Planning legislation
- If the property is leasehold, to observe the covenants in the Lease
- Any other practical obligations which may devalue the property
If you do enter financial difficulties, it is best to communicate with your lender and take appropriate steps/advice. They are frequently accommodating in their approach if you do find yourself in this situation.
We would therefore urge you to read the Mortgage Deed/Offer and any explanatory notes very carefully to ensure you are fully appraised of their contents.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. (50587)