Despite the fact that millions of people in the UK use mortgages to purchase a home, an alarming number are unaware of what a mortgage is. This is according to new research from debt management company Lowell.
The research shows that a large number of Brits don’t have a confident understanding of their personal finances and are confused by some key financial terms. Here is everything you need to know.
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What is a mortgage?
A mortgage is basically a loan that you can use to purchase a home. When you take out a mortgage, you agree to repay the loan, with interest, over a set period of time. The loan is secured against the value of your home until it is paid off.
If you’re unable to make your payments, the lender may repossess and sell your home to recoup their money.
While it all appears to be fairly straightforward, Lowell’s research indicates that 46% of Brits are unaware of what a mortgage is.
In fact, a large number of Brits are unfamiliar with a variety of key financial terms. For example, 44% do not understand what an overdraft is and 52% don’t know the meaning of the term ‘arrears’.
So, it’s no surprise that Lowell’s data shows that 28% of people in the UK lack confidence in managing their personal finances.
Why are people clueless about mortgages and other personal finance terms?
The lack of confidence and understanding about personal finance and key financial terms like mortgages may be partly attributable to inadequate financial education at school.
Indeed, according to Lowell’s research, 84% of Brits believe that learning about finances in school could have helped them avoid personal financial problems in the future.
The confusion over personal finances and financial terms could also be attributable to the places people look for financial advice.
Only a third (36%) of Brits say they would go to their bank for financial advice. And only 35% say they would see a financial adviser.
Unfortunately, many also rely on unqualified and unreliable sources such as:
- Google (30%)
- family and friends (27%)
- social media, like Tik Tok and Instagram (9%)
Why is it important to understand what a mortgage is and how it works?
A mortgage is a significant personal and financial commitment. It is therefore more than useful to have a good understanding of what you are getting yourself into.
It’s important to understand how much you will be paying per month, and if and when this amount might change.
If you take out a variable rate mortgage, for example, your rates will fluctuate in line with interest rates. On the other hand, a fixed-rate mortgage will remain constant.
It is important to understand such differences to ensure that you don’t get yourself into a deal that could negatively impact your future financial wellbeing.
Where should I look for advice on mortgages?
There are numerous personal finance websites that provide reliable easy-to-read information and guidance on mortgages and how they work, including our very own MyWalletHero.
However, while the internet is a good place to start for general mortgage information and guidance, it is critical to get personalised and professional assistance when deciding which mortgage is best for you.
Your bank or building society, for example, will know about you and your financial situation. They can provide you with information about their own mortgage products as well as guidance and advice on which ones would be suitable for you.
You can also speak with a mortgage adviser. This is a mortgage specialist who has in-depth knowledge of the market.
A mortgage adviser can explain and help you understand all of the complicated terms. More importantly, they can look at a variety of mortgage products with you and assist you in deciding which one best suits your needs and personal financial situation.