Beginners’ guide to mortgages – MoneyWeek investment tutorials

A property mortgage is the biggest debt most of us will ever take on. So choosing the right one is vitally important. Tim Bennett explains the basics of mortgages and highlights the main pitfalls to avoid.

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What is a mortgage?

Mortgages exist to solve a problem. Most people want to buy their own home, but a house costs hundreds of thousands of dollars, and you likely don’t have that kind of cash lying around in the crevices of your sofa. You’d have to work and save for decades to get that much money, and in the meantime you could easily end up paying out more in rent than the cost of the house you wanted to buy.

So to enable people to buy a house before they are too old to remember why they wanted it in the first place, we have the mortgage system. A mortgage is just a type of loan, pure and simple. If the house you want to buy costs 0,000, then you could pay ,000 from your savings (that’s called the downpayment), and borrow the remaining ,000 from the bank.

So if it’s that simple – just a housing loan that you pay back over time – why all the fuss and complexity around mortgages? Well, mortgages come in more flavors than Ben & Jerry’s ice cream, and not all of them taste good. You’ve got ARMs and balloon mortgages, fixed-rate loans and interest-only loans, bridge loans and refis and reverse mortgages.

Learn more about the different types of mortgages and find out which one is right for you with Wall Street Survivor’s Paying For Your Home course: