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Mortgages and deposits: the basics

What is a mortgage?

By Marie Kemplay

Article 1 of 4

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What is a mortgage?

A mortgage is a loan that enables you to buy a house. Watch our short, easy-to-understand video to find out how mortgages work.


Video transcript

Unless you have a stack of cash sitting around, getting a mortgage is the essential part of buying a home. But how is a mortgage different from a loan and what type should you get? Unlike a normal loan, a mortgage is specifically tied to the house you're buying. You usually borrow a percentage of the value of that property repaying the amount you've borrowed plus interest charged by the mortgage lender.

If you fail to repay your mortgage, your house could be taken away and sold to cover the loan you've taken out. When you are buying a house, for yourself, there are two main types, of mortgage to chose from. With a repayment mortgage, you gradually repay the amount he borrowed, this is known as the capital.

Each month, some of what you pay goes towards paying off the capital, while the rest covers the interest. By the end of the mortgage, usually in 25 years, you would have repaid everything you've borrowed. An interest only mortgage usually has lower monthly payments because you're not paying off the actual money you borrowed, just the interest.

It's up to you to pay off the capital at the end of the term. By paying a separate amount in to an investment for example. New mortgages usually charge you a lower rate of interest in the first few years to entice you in. This can be fixed or variable. A fixed rate is usually slightly higher, but gives you the security of a regular payment each month.

On a variable rate mortgage, the monthly repayment can change. If the interest rate goes down, you could pay less, but there's a chance it can go up, leaving you to pay more each month. Whatever type you decide you can use the which mortgage comparison tables to search through hundreds of deals from different providers to choose the best deal for you.

For more information visit whichcompare.co.uk/mortgages.

Types of mortgage deals 

With hundreds of deals to choose from, finding the right mortgage can be a minefield. 

The video above explains the key differences between a repayment mortgage and an interest-only mortgage, which you can also read more about in: interest-only and repayment mortgages.

You might also want to take a look at the pros and cons of fixed-rate mortgages, tracker mortgages, discount mortgages and standard variable rate mortgages. 

The mortgage you choose will depend on your circumstances. Some important things to keep in mind when deciding which type is right for you include:  

  • how much you've have saved for a deposit
  • the type of property you're buying - a house, flat, new-build etc
  • the length of time you want to be paying off the mortgage
  • how much you can afford to pay each month.

For more information on how to choose the best mortgage for you, visit our Which type of mortgage deal is right? page.

Mortgage rates

With so many different types of mortgage available, interest rates can vary considerably. Mortgages with a fixed rate over a long period of time tend to charge more interest, as you're paying for the security of knowing that the amount you pay won't change during that period.

It's not just the interest rate you need to look out for though. While choosing the the lowest rate might seem like the best option, low-rate mortgage deals often come with large arrangement fees, meaning you could end up spending a much larger chunk up front to secure your deal. Depending on your circumstances, a mortgage with a higher interest rate and smaller arrangement fees could work out cheaper.  

Find out more: Which? Mortgage Advisers - if you'd like an impartial expert to look at every single mortgage on the market and recommend the best one for your personal circumstances, call 0808 252 7987.

  • Last updated: September 2016
  • Updated by: Marie Kemplay



Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.