Home loans – how they work

A home loan or mortgage will often be one of the biggest financial commitments in a persons’ life. With house prices in the UK having risen for the past few years the finance taken out to enable this purchase has grown with it.

A home loan or mortgage basically uses the property as security for the line of finance, with the added security being that the lender holds the mortgage deeds. Which such a hold over the property they are then able to repossess and eventually sell the home should the borrower no pay them the money back under the agreed terms. Lenders are obviously happy with this arrangement as it gives them stronger powers to retrieve their monies under adverse circumstances (i.e non payment). Because of this the interest rates will often be lower than other forms of loan or credit.

The home loan market in the UK is simply massive. This is due to the strong popularity in homeownership, which is more common in the United Kingdom than many other companies who prefer to rent. Clearly in order to fund the purchase of your home some type of finance is needed, unless you are unusually wealthy. This has leveraged a large market in mortgages with Banks, Building Societies and other finance companies creating products for this use. There are now many different product types each with their own particular features, strengths and weaknesses which can be recommended to suit a specific applicant profile.

Home Loan mortgage types can include

Fixed Rate – this fixes a specific rate on the loan for a set period of time during which the fixed rate remains in place neither moving up nor down.

Tracker – this product type can move up and down in line with the Bank of England Base Rate (which is set by Bank of England Monetary Committee to moderate or influence the economy as they see fit)

Discounted rate – this provides a percentage saving on the variable home loan rate that a lender will charge.

Remortgaging

A recent growth sector within home loans has been the popularity of remortgaging. This is replacing a mortgage home loan with another. This could be for a number of reasons which typically include restructuring payment and debt or finding a lower interest rate.