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A mortgage is a loan that you use to buy a property.
When you buy a home, you'll put down a cash deposit of at least 5% of the property's price, and then pay the remainder using a mortgage from a bank or building society.
You'll repay your mortgage in monthly instalments over a set period - for example, 25, 30 or 35 years.
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Most homebuyers take out repayment mortgages, where you pay back some of the loan and some interest each month.
The main alternative is an interest-only mortgage, where you just pay the interest each month then repay the sum you originally borrowed at the end of the mortgage term.
Within those two categories, there are several different types of deal you can choose from. The most common are:
You can get a broad overview of each in our guide on the types of mortgages, or click the links above to learn about the individual options in more detail.
When you take out a mortgage, you'll usually pay the headline rate for a set number of years - most commonly two or five. This is known as the introductory or deal period.
Once this period ends, you'll be automatically moved on to your lender's standard variable rate, which is usually significantly more expensive. To avoid this, most borrowers switch to a new deal at this point. This is called remortgaging.
Some important things that will affect your choice of mortgage, and the deals available to you, include:
If you're unsure about any of the above, consider talking to an independent mortgage broker, who will be able to advise on the best option for you.
No matter what type of mortgage you go for, you'll have to pay interest on the loan. Despite this, you shouldn't choose a deal purely on the headline interest rate.
Other factors are at play, too. You'll usually need to pay a fee to set up the mortgage (this might be called an arrangement fee, booking fee, or completion fee). These fees are often highest on the mortgages with the cheapest rates.
It's also important to look out for things such as early repayment charges, and whether the mortgage can be transferred to another property (this is called porting a mortgage).
Searching for a mortgage can be complicated. You could save time and money by using a mortgage broker: a professional adviser who can find and apply for a deal on your behalf.
Some mortgages are only available through brokers, but in other cases the opposite is true and you'll only get the deal if you apply directly yourself.
A whole-of-market broker should look at the entire mortgage market and recommend the right deal for you.
When you're ready to start viewing properties, estate agents might ask whether you have a mortgage agreement in principle (AIP).
Also known as a decision in principle (DIP), an AIP is a statement from a bank saying that it is, in principle, willing to lend you a certain amount of money, subject to full affordability checks being passed.
Having an AIP can help you show that you're able to access the funds and are a serious buyer.
When you apply for a mortgage and receive a formal offer from a lender, it will usually only be valid for a certain amount of time.
Most mortgage offers last for three to six months - although longer offers are sometimes available on new-build homes. If you don't complete your purchase in this time, you'll need to ask for an extension.
In some cases, this means you might have to go back through the bank's affordability assessments.
There's a lot of jargon in the world of mortgages and property. Look up the definitions of all the most commonly used terms in our simple jargon buster.
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