Houses are expensive to buy and few people have enough money of their own. Most people have to take out a mortgage , a type of loan. In Britain people usually get a mortgage from a bank or a building society ; in the US they get one from a bank or a savings and loan association . People usually put down a deposit (= pay a percentage of the price of the property) and borrow the rest, although some lenders will lend up to 100% of the amount needed. Mortgages are paid back in monthly payments over a period ranging from 15 to 30 years. The person borrowing the money has to pay interest on the loan, so that the final amount paid is considerably more than the amount of the loan itself. The security for the loan is the house itself. If a borrower fails to keep up payments , the house may be repossessed by the lender and sold so that they can get their money back.
There are different types of mortgages. With a fixed-rate mortgage , the amount of interest remains at a particular level and the monthly payments do not change. This type of mortgage is more popular in the US than Britain, where variable-rate mortgages ( AmE usually adjustable-rate mortgages ) are more common. With a variable-rate mortgage, the rate of interest can increase or decrease depending on the state of the economy. Another type of mortgage found in Britain, popular especially in the past, is the endowment mortgage : borrowers pay interest on the loan to the bank or building society and a fixed sum towards an endowment policy, a type of insurance policy which will pay a sum of money at a future date that will be used to repay the loan.
For many people, paying back a mortgage is their greatest financial burden. People talk of being ‘mortgaged up to the hilt’, meaning that their mortgage payments leave them with little money for anything else. If the owner of a house needs to borrow money he or she may decide to take out a second mortgage on the house. Another practice, called remortgaging ( AmE refinancing ) involves changing an existing mortgage to a different type offered by the lender or replacing it with a mortgage from another lender, usually in order to obtain a lower rate of interest.
House prices sometimes rise very fast and then fall again. Some people who buy a house when prices are high can become victims of negative equity . Equity means the actual value of a house, and negative equity means a situation in which the value of a house falls below the amount borrowed as a mortgage. This makes it impossible to sell the house without making a loss.