MORTGAGES

A mortgage is a loan from a bank or building society that lets you buy a property. It is a secured loan, which means the bank has the right to take back and sell the property if you cannot keep up with your monthly repayments 

Once you get a mortgage, you pay back the amount you have borrowed, plus interest, in monthly instalments over a set period, usually around 25 years. Some mortgages in the UK have longer or shorter terms.   

The mortgage is secured against your property until you have paid it off in full. This means the lender could repossess your home if you fail to repay it.

In the UK, you can get a mortgage on your own or take out a joint mortgage with one or more people. 

A mortgage is a type of loan that’s secured against your property.   

A loan is a financial agreement between two parties. A lender or creditor loans money to the borrower and the borrower agrees to repay this amount, plus interest, in a series of monthly instalments over a set term.  

There are several types of loans. Some are secured, such as a mortgage, but others are unsecured. This means you do not need to use an asset as collateral. However, the amounts borrowed with unsecured loans are usually smaller with higher interest rates. 

A deposit is a down payment, and it’s the amount you have to put towards the cost of the property you’re buying. The more you can put down as a deposit, the less you’ll need to borrow as a mortgage and the better the mortgage rate you’ll be offered.  

 A deposit is a percentage of the property's value, so if you bought a house for £200,000, a 10% deposit would come to £20,000.  

Your mortgage provider will lend you the remaining 90% of the purchase price.   

This is what is known as the Loan-to-Value (LTV).   

It measures the percentage of the property price that you will need to borrow to make the purchase.   

In the above example, a 90% LTV mortgage would cover the remaining £180,000, which would be the amount you owe your lender. 

A 95% mortgage would mean you would put down a 5% deposit – or £10,000, meaning you would borrow a mortgage of £190,000 in the above example. 

 The mortgage term is simply the length of time over which you repay your mortgage. You’ll be able to choose your term when you apply.

For example, if you took out a 25-year mortgage in 2021 and made all of the repayments on time, your mortgage would be paid off in full by 2046.

If you are applying for your first mortgage:

• A term of fewer than 20 years would be a short-term mortgage
• A term of 30 years or more would be a long-term mortgage

This will depend on your circumstances, but it’s worth keeping the following in mind when making your decision:

• Longer-term mortgages cost less per month because the repayments are spread over a longer-term. However, this means that your mortgage will cost you more overall because you will be charged more interest over a longer period.
• Shorter-term mortgages have higher monthly repayments, but this means you’ll pay off the balance quicker. As a result, you’ll own your home outright much sooner and pay less in total because you won’t be charged as much interest.

 Everyone has different financial circumstances. What may be best for one person may not be ideal for another. So the best mortgage term is one that results in affordable monthly repayments but does not have you paying more in interest than necessary.