What is a Mortgage?

A mortgage loan is a legally binding contract with a Bank or Building Society that enables you to purchase a property. The lender uses the house as security for the loan. You have the ability to choose from a number of different methods of how to repay the borrowing and meet the interest payments. This also allows you to select the best mortgage for your own financial circumstances and personal needs.

A mortgage is a long term financial commitment with repayments typically spread over a term of up to 25 years. However in practice, people often sell their house before the end of the mortgage period. The original loan is then repaid from the sale of the first house and a new loan is taken out to buy the new home. Each joint borrower is individually liable for the amount of the loan and interest due to the lender and is always responsible for the full amount outstanding. Events such as separation, divorce, unemployment, long term sickness, injury or disability could ultimately cause a house to be sold and the mortgage to be terminated.

The early repayment of a loan can have different financial consequences depending on the type of mortgage involved. This matter is covered in more detail in the following pages.

We would recommend that all applicants consider arranging a suitable life assurance policy, which would repay the borrowing in the event of death or critical illness. This ensures that, in these distressing circumstances, your house would not have to be sold to repay the mortgage. As a matter of course we review any existing life assurance policies to check whether they are suitable for this purpose.