Mortgages Simply Explained

Mortgages Simply Explained

Silver Maple Mortgages |


We know mortgages are confusing, especially if you’re a first-time home buyer. What exactly is a mortgage? How does a mortgage work? 


Simply defined, a mortgage is a loan taken out to buy property or land. Most run for 25 years but the term can be shorter or longer. The loan is ‘secured’ against the value of your home until it’s paid off. If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.

When determining how much you can afford, don’t stretch yourself if you think you’ll struggle to keep up repayments. Also, think about the running costs of owning a home such as household bills, council tax, insurance and maintenance.

Lenders will want to see proof of your income and certain expenditure, and if you have any debts. They might ask for information about household bills, child maintenance and personal expenses. Lenders want proof that you will be able to keep up repayments if interest rates rise.

When buying a property, you will need to pay a deposit. This is a chunk of money that goes towards the cost of the property you’re buying. The more deposit you have, the lower your interest rate could be. When talking about mortgages, you might hear people mentioning “Loan to Value” or LTV. This might sound complicated, but it’s simply the amount of your home you own outright, compared to the amount that is secured against a mortgage.

Applying for a mortgage is often a two-stage process. The first stage usually involves a basic fact find to help you work out how much you can afford, and which type of mortgage(s) you might need. The second stage is where the mortgage lender will conduct a more detailed affordability check, and if they haven’t already requested it, evidence of income.


Stage 1

Generally, the lender or mortgage broker will ask you a series of questions to work out what kind of mortgage you want, and how long you want it for. They’ll also try to work out, without going into too much detail, your financial situation. This is generally used to provide an indication of how much a lender might be prepared to lend you. They should also give you key information about the product, their service and any fees or charges if applicable.


Stage 2

This is usually where you begin your application. The lender or mortgage broker will begin a full ‘fact find’ and a detailed affordability assessment, for which you’ll need to provide evidence of your income and specific expenditure, and ‘stress tests’ of your finances. This could involve some detailed questioning of your finances and future plans that could impact your future income.They’ll also assess the impact on your repayments should interest rates rise in the future.


If your application has been accepted, the lender will provide you with a ‘binding offer’. This will come along with a ‘reflection period’ of at least 7 days, which will give you the opportunity to make comparisons and assess the implications of accepting your lender’s offer. You have the right to waive this reflection period to speed up your home purchase if you need to. During this reflection period, the lender usually can’t change or withdraw their offer except in some limited circumstances.


If you have any questions about applying for a mortgage or what any of this means, let us know! You are welcome to call or email us anytime. We are here to help!