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Understanding mortgage jargon: A guide for homebuyers in the UK

Buying a home can be an exciting but also overwhelming experience, especially if it's your first time. There are many terms and concepts to understand, and it can be helpful to have a guide to refer to as you navigate the process. Here are some common terms you might come across as you research mortgages and consider purchasing a home in the UK:

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Mortgage: A mortgage is a loan that you take out to buy a property. The property itself serves as collateral for the loan. You’ll make monthly payments to the lender, which will typically include both interest and the amount borrowed. 


Interest rate: The interest rate on a mortgage is the percentage of the loan amount that you’ll pay in interest. This is in addition to the capital, or the amount of the loan itself. The interest rate can have a big impact on your monthly payments and the overall cost of the loan. 


Fixed-rate mortgage: With a fixed-rate mortgage, the interest rate remains the same throughout the fixed-rate period, typically 2 or 5 years. This can be a good choice if you want the stability of knowing what your monthly payments will be and if you think interest rates might rise in the future. 


Variable-rate mortgage: With a variable-rate mortgage, the interest rate can change over time. The rate is typically tied to a benchmark interest rate, such as the Bank of England’s base rate. A variable-rate mortgage can be a good choice if you think interest rates might go down in the future, but it also means that your monthly payments could fluctuate. 


Deposit: A deposit is a sum of money that you’ll need to put down when you buy a home. The size of the deposit will depend on the lender and the type of mortgage you’re getting, but it’s typically a percentage of the purchase price. A larger deposit can help you get a lower interest rate and may make it easier to get approved for a mortgage. 


Equity: Equity is the portion of the property that you own outright, as opposed to the portion that you still owe on your mortgage. As you make mortgage payments and the balance of your loan decreases, your equity in the property increases. 


Repayment mortgage: With a repayment mortgage, you’ll make monthly payments that include both interest and capital. This means that over time, you’ll pay off the entire loan and build up equity in the property. 


Interest-only mortgage: With an interest-only mortgage, you’ll only make payments on the interest portion of the loan. You’ll need to have a separate plan in place to pay off the principal, such as through investments or the sale of the property. Interest-only mortgages can be riskier and are less common than repayment mortgages.


At The Mortgage Branch, we are here to help you secure the most suitable mortgage for you, whatever your situation.


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