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A mortgage is essentially a type of loan that is taken out against a property, which can include a house, flat or apartment. Since the property is acting as security for the mortgage loan, failure to cover and make the mortgage payments ultimately endangers the borrowers claim on that property and his entitlement to the property will cease. A domestic mortgage is taken out for any property in which the occupier themselves intends to live, where as commercial mortgages are used for business orientated properties, such as professional offices, factories or shop premises.

A borrower will apply for a mortgage either directly through the lender, or sometimes for the benefit of more independent advice, a borrower may choose to operate through an intermediary service such as a mortgage broker. Once a mortgage scheme has been negotiated both the lender and the borrower sign a deed of mortgage, in which both parties have agreed the terms and conditions. This mortgage deed is based on the principal of ‘equity of redemption’, which ultimately means that on full redemption (repayment) of the loan, the lender will give up all rights to the property and therefore all rights to the property will be restored to the borrower.

Before agreeing to offer a loan, a mortgage lending company will make assessments of the borrowers financial status and credit history, since they will be unlikely to make an offer if the borrowers income is not sufficient to cover the loan repayments and other associated costs. This assessment of financial standing is usually based on some form of evidence relating to earnings, which can vary from a pay slip or even correspondence with the Inland Revenue. However the most important factor is that the borrower’s income, no matter how large, is ‘free’- that is not tied up with investments or other properties and so on.

It is not always possible to acquire a mortgage loan that will cover the entire cost of the property, so for this reason a borrower will often have to find a deposit varying from 5-10% of the property’s selling price. The deposit that the borrower can afford to make at this early stage will ultimately effect their ‘equity’ status. Equity refers to the amount of money that would be left after the sale of the property following the full repayment of the mortgage and other costs. Therefore if you are able to make a larger deposit yourself, outside of the mortgage loan, then you would have a greater protection against ‘negative equity’, meaning that the repayment of the mortgage loan and other costs relating to the property would actually exceed the value of the property after sale.

In the process of arranging a mortgage the borrower will usually be asked to make a one off, but non-refundable ‘arrangement fee’. In the interest of the mortgage lending companies, this fee aims to deter and reduce the number of ‘browsers’ and ‘time-wasting’ customers, whilst in a more practical sense, it also covers the majority of the initial organisational costs. However, since the mortgage lending sector of the financial market is becoming increasingly crowded and there is much more competitive, many companies are now offering ‘cash back’ schemes, which entitle the borrower to a cash payment on the completion of a successful mortgage loan application. Obviously various terms and conditions apply and will vary greatly between the individual companies. A major condition of all mortgages is that the property is independently surveyed to complete a full property valuation and thus determine the size of the mortgage loan.

There are currently many different types of mortgage on the market, varying from 100% mortgages, where the borrower is in the position to borrow the full amount to cover the cost of their property, to fixed rate mortgages, which offer the security of non-fluctuating levels of interest. However whatever the type of mortgage, there will be some form of interest, ultimately meaning that the loan has been at some cost to the borrower, and it is essential for this reason, to carefully consider your ability to meet the mortgage repayments. Failure to do this could ultimately lead to the loss of your property and your home, of course this is the worst-case scenario and in the majority of cases mortgages help people to successfully become homeowners.

If you wish to apply for a loan or mortgage that you cannot see on this site then you can apply with our parent site Loans UK.

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