Get a better understanding of mortgages and how they function by reading our simple tutorial. What’s the difference between a home loan and a mortgage?

A mortgage is a type of loan used to fund the purchase of a home.

When buying a house, you’ll need to put down a down payment (typically at least 5% of the purchase price) and then get a loan from a bank or building society to cover the rest of the cost.

You then pay back the mortgage and interest over a predetermined period of time.

To learn the fundamentals of how mortgages work, watch this short video.

What kinds of mortgages are available?

Almost all mortgages are either repayment mortgages, where you pay back a portion of the loan and a portion of the interest each month, or interest-only mortgages, where you simply pay interest each month and eventually pay back the amount you borrowed.

Part-repayment, part-interest-only arrangements are conceivable on rare occasions, but they are exceedingly uncommon.

There are a variety of deals to pick from in each of the two categories of mortgages. The most popular are:

mortgages with a set rate of interest
mortgages with a pre-payment penalty
mortgages at a reduced rate
mortgages that aren’t repaid in full.

A general summary of each can be found in our mortgage type guide or by clicking on the links above to learn more about each choice.

The introductory or deal period, which is normally two to ten years long, applies to the type of mortgage you pick.

This is followed by a normal variable-rate mortgage, which is typically more expensive. Because of this, many people prefer to remortgage their homes at this stage.

Consider the following while evaluating your options for a home loan and the rates you’ll be offered:

money saved up to put down a deposit
whether you’re purchasing a house, an apartment, or a brand-new construction
the amount of time you wish to spend repaying your mortgage (known as the mortgage term)
how much of a monthly budget do you have?
you’re utilising Help to Buy or some other scheme

A mortgage broker that works for themselves will be in a better position to guide you in making the right decision.

Deals to be compared

You’ll have to pay interest on the loan whatever of the type of mortgage you choose – but you shouldn’t choose a contract only on the interest rate.

Low-rate mortgages sometimes have higher arrangement fees, which means that you’ll have to spend more money upfront to get your mortgage set up (commonly referred to as an arrangement charge).

A mortgage with a little higher interest rate but a lower arrangement fee might be the best option for you, depending on your specific situation.

What is the purpose of a mortgage agreement?

Estate agents may ask if you have a pre-approved mortgage when you begin looking at properties (AIP).

An AIP, or “decision in principle,” is a bank’s statement that it is willing to give you a specific amount of money if you pass all of the bank’s affordability criteria.

You can demonstrate to sellers that you’re a serious buyer by providing an AIP to estate agents. Even if you do not always need one, applying without first checking with local real estate brokers to see if you need one could harm your credit score.

Does a mortgage offer have a set expiration date?

Typically, a lender’s formal offer for a mortgage is only valid for a certain period of time.

If you don’t close on your new house within the three to six months that most mortgage offers are valid, you’ll need to request an extension.

This may necessitate a re-run of the bank’s affordability evaluations in some situations.

A mortgage broker is a professional who helps people obtain financing for home purchases.

When looking for a mortgage, the process can be time-consuming and expensive, but a mortgage broker can help you save both time and money (a professional adviser who can find and apply for a deal on your behalf).

Other times, you’ll have to apply for a mortgage on your own if you don’t want to use a broker (‘intermediaries’).

A full-market broker should look at all of the mortgage options available to you and recommend the best one for your situation.