Mortgage

(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

A mortgage is a loan, specifically for buying property, which is secured against that property. This means that if the borrower doesn’t pay (defaults), then the mortgage issuer can repossess and sell the house in order to get their money back. Because of this security, interest rates are usually much lower than other borrowing like credit cards and personal loans. Mortgages tend to be longer-term loans, 25-35 years being the most common terms. 

You'll typically need a deposit (usually at least 5-10% of the property value) to get a mortgage, and you'll pay back both the amount borrowed (the principal) and interest each month. The property acts as collateral which means you don't fully own it until the mortgage is paid off.

There are different types of mortgages - repayment mortgages which do pay off the principal and interest only which don’t. You can get commercial mortgages too and re-mortgages can be taken out, perhaps to fund renovations. Mortgages can also have fixed or variable interest rates. It’s a complex area!

Love Eleanor. xxx