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Mortgage

What is a mortgage?

A mortgage is a loan you take out to buy property. Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but don't move home it's referred to as a 'remortgage'. Choosing a mortgage - where to start.

You can get a mortgage direct from the lender (banks, building societies and specialist mortgage lenders), or you can use a mortgage broker. You can buy based on 'information' only or get advice and recommendation on a mortgage that suits your particular needs.

Repayment methods

The two main ways to repay your mortgage are 'repayment' and 'interest only'. With a repayment mortgage you make monthly repayments for an agreed period (the 'term') until you've paid back the loan and the interest.

With an interest only mortgage you make monthly repayments for an agreed period but these will only cover the interest on your loan. You'll normally also have to pay into another savings or investment plan that'll hopefully pay off the loan at the end of the term.

Flexible features

Some mortgages offer you options to vary your monthly payments, or to combine your mortgage account with savings and other income - these are called flexible, current account and 'offset' mortgages.

Interest rates

You'll also find a range of interest rates to choose from. For example, 'variable' and 'tracker' rates change in line with Bank of England rates, 'fixed' rates are fixed for a set number of years, and 'capped' rates have a variable interest rate with a ceiling so your payments won't go above a set amount.

Insurance

A lender may require you to take out life insurance to pay off your mortgage should you die. You can also get insurance to protect your income or just your mortgage payments if you become ill or disabled, or lose your job.

'Moneymadeclear' from the FSA

The FSA Moneymadeclear website is a great place to find out more about buying a home and mortgages, whether you are a first time buyer or shopping around for your next mortgage.

n. a document in which the owner pledges his/her/its title to real property to a lender as security for a loan described in a promissory note. Mortgage is an old English term derived from two French words "mort" and "gage" meaning "dead pledge."

To be enforceable the mortgage must be signed by the owner (borrower), acknowledged before a notary public, and recorded with the County Recorder or Recorder of Deeds.

If the owner (mortgagor) fails to make payments on the promissory note (becomes delinquent) then the lender (mortgagee) can foreclose on the mortgage to force a sale of the real property to obtain payment from the proceeds, or obtain the property itself at a sheriff's sale upon foreclosure. However, catching up on delinquent payments and paying costs of foreclosure ("curing the default") can save the property. In some states the property can be redeemed by such payment even after foreclosure. Upon payment in full the mortgagee (lender) is required to execute a "satisfaction of mortgage" (sometimes called a "discharge of mortgage") and record it to clear the title to the property.

A purchase-money mortgage is one given by a purchaser to a seller of real property as partial payment. A mortgagor may sell the property either "subject to a mortgage" in which the property is still security and the seller is still liable for payment, or the buyer "assumes the mortgage" and becomes personally responsible for payment of the loan.

Under English common law a mortgage was an actual transfer of title to the lender, with the borrower having the right to occupy the property while it was in effect, but non-payment ended the right of occupation.

Today only Connecticut, Maine, New Hampshire, North Carolina, Rhode Island and Vermont cling to the common law, and other states using mortgages treat them as liens on the property. More significantly, 14 states use a "deed of trust" (or "trust deed") as a mortgage. These states include: California, Illinois, Texas, Virginia, Colorado, Georgia, Alaska, Arizona, Idaho, Mississippi, Missouri, Montana, North Carolina and West Virginia. Under the deed of trust system title is technically given to a trustee to hold for the lender who is called a beneficiary. (See: deed of trust, trust deed, foreclosure, notice of default, judicial foreclosure)


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