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What is a mortgage? A short back to basics guide

Written by Ipswich Building Society

24 Apr 2019


First time buyers

3 min read

What is a mortgage?

It is a specialist type of loan used to buy a property (or land). A lender will use the property as security (collateral) for the loan, releasing a lump sum of funds to the borrower in exchange for regular repayments. Once the lender has been repaid the funds they no longer hold any security over the property.

How much does a mortgage cost?

There is no set cost of a mortgage and several different types of loan to choose from. Before taking out a mortgage contract borrowers should carefully check the terms to make sure they understand all of the conditions which apply. Borrowers will typically need to pay interest on their loan and may be subject to additional fees such as application fee, completion fee, property valuation fee and other associated charges.

What is mortgage interest?

Mortgage interest is expressed as a percentage, referring to the rate charged on the funds. The interest rate is set by the lender prior to the mortgage contract being taken out. There are several different types of interest rate, mainly fixed, variable and tracker rates.

What happens if the mortgage is not repaid?

Should the borrower ‘default’ on repayments, or fail to repay the loan, the lender will work with them to find an agreeable solution. Borrowers facing repayment difficulties should always get in touch with their lender from an early stage. As a last resort the lender has the option of repossessing the property in order to settle the debt owed.

More information for borrowers having trouble repaying their mortgage can be found here.

What is a remortgage?

A remortgage is, essentially, the process of swapping an existing mortgage deal for another one – either with the current lender or with a new one entirely. You can read more about remortgages in our blog.

Why is it called a mortgage?

The term mortgage is made up of two words: ‘mort’ and ‘gage’, old French terms literally meaning ‘death’ and ‘pledge’. A mortgage effectively “dies” when the original loan is repaid.

Getting a mortgage is a big financial decision. Borrowers should fully assess all of their options before taking out any type of mortgage loan and consider seeking professional, no-obligation advice.

At Ipswich Building Society we offer free, no-obligation mortgage advice through our team of Mortgage Consultants. If you’re looking for a mortgage with us we’ll do our best to find the right one for you.  Give us a call on 0330 123 0723.

This article was published under our previous name of Ipswich Building Society. We changed our name in 2021 – find out more.

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