loans
I know what a loan is, but what about a mortgage?
It may seem hard to believe to all of the homeowners out there, but there are large sections of society who don’t actually know what a mortgage is. They just about understand what a loan is, and they spend regularly on a credit card, but mortgages – forget it, they’re flummoxed.
Things aren’t really helped by the rather difficult to understand dictionary definition of what a mortgage is. I called on my helpful online friend Dictionary.com (who else) to help me. It threw up this result:
Mortgage – noun. 1. A conveyance of an interest in property as security for the repayment of money borrowed.
Er... what? No wonder some people don’t understand! How about this basic explanation:
In simple terms a mortgage can be put like this:
A man wants to buy a house, but it costs £200,000. He doesn’t have £200,000; he only has £20,000, so he goes to a bank to get a mortgage. A mortgage is basically a big loan that a bank gives you so you can afford the purchase straightaway. After you’ve used the loan to pay for the house, you then repay the bank over a long period of time at a rate of interest (APR). Sometimes, because of the big figures involved, this can take as long as 25 years!
In the case that you find yourself unable to make the minimum repayments for your mortgage, then you’ll run into a spot of bother. What the whole ‘interest of property as security for the repayment of money borrowed’ bit means is that your house is used as security to guarantee repayment of the loan. So, if you can’t repay, the bank takes your house – after all, they’ve technically paid for it! Take a look at Halifax if you’re shopping for a mortgage in the UK – it’s the biggest provider in the country.
On a personal loan or credit card, they don’t have these securities in place, meaning you’ll typically pay higher rates of interest due to the added risk to the lender. For one of the lowest rates in the UK (at the time of writing) take a look at Alliance and Leicester for loans – they are currently offering a competitive rate of 6.9%, and even lower if you sign up for one of their award winning current accounts.