Home Loan Types

In its simplest form a home loan is borrowing money using property as a security, or a loan secured upon a property and is a type of secured loan. The most known use of a home loan is a mortgage used to purchase a property.

A home loan allows you to borrow a large amount of money in order to buy a home or property which is secured against the value of that property subject to the lenders terms and conditions, you agree to pay the mortgage amount back to the lender at the end of a specified term.

As the home loan is secured on your property then your home may be at risk if you do not keep up with the payments on a loan or or mortgage secured on your property.

Some terms explained

Capital
Interest
Term
Repayments

The home loan mortgage is created by a legal charge on the property. The charge is noted by the land registry on your deeds and confirms that the property has been pledged to the lender as security for the mortgage loan.

The legal charge is supported by a loan agreement between the two parties which sets out the terms of the loan, the responsibilities and undertakings.

You have two options
Repay the capital and the interest together within your monthly mortgage payment - this is commonly known as a 'repayment' mortgage.
Pay each month the interest to the lender ‘interest only’, and put in place investments to build up enough capital money to repay the lender in full at the end of the term.

When looking at how much money a lender is willing to let you borrow, there are two factors to take into account. First of all, they will want to know what single or joint income you have, most lenders will work on multiple incomes and vary from lender to lender. A rough guide is three times a single salary or two and three quarter times a joint salary. Most home loan mortgage lenders have the same or similar multiples they use but shop around to get the best available mortgage multiple.

Most lenders will also take into account the amount that you are looking to borrow, and the total value of the property, along with your credit status.

The total amount of the loan that you borrow.
The charge for borrowing money. A percentage of the capital.
The period of time that the money is borrowed over.
The regular payments you make throughout the term of the mortgage.