Video: 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.
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What types of mortgage deals are there?
With hundreds of deals to choose from, finding the right mortgage can be a complicated business.
Pretty much all mortgages are either classified as repayment mortgages, where you pay back a bit of the loan and a bit of interest each month, and interest-only mortgages, where you just pay interest each month then pay back the sum you originally borrowed at the end of the mortgage term (it is occasionally possible to be on a part-repayment, part-interest-only deal but this is very rare).
Within those two broad categories of mortgage, there are several different types of deal you can choose from. The most common are:
- fixed-rate mortgages
- tracker mortgages,
- discount mortgages
- offset mortgages and
- standard-variable-rate mortgages.
You can get a broad overview of each in our guide to mortgage types, or click the links above to learn about the individual options in more detail.
The mortgage you choose will generally depend on your circumstances. Some important things to keep in mind when deciding which type is right for you include:
- how much you've 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 for
- how much you can afford to pay each month.
How do mortgage rates work?
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.
What is a mortgage agreement in principle?
A mortgage agreement in principle (also known as a decision in principle) is a statement from a bank offering to let you borrow a certain amount of money, subject to full affordability checks being passed.
An agreement in principle shouldn't be seen as a guarantee that you'll get the money - but it can work in your favour if you're competing with other buyers for a property.
You can find our more in the full guide on mortgage agreements in principle from Which? Mortgage Advisers.
How long does a mortgage offer last?
Once you've received formal confirmation of your mortgage offer, you'll need to complete your purchase within a timely manner before it expires.
Most mortgage offers last for three to six months - longer deals are available on new-build homes - and 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.
What is a mortgage broker?
Searching for a mortgage can be complicated, but you could save time and get a better deal by using a mortgage broker.
A whole-of-market adviser can look at the entire mortgage market (including those only available through brokers) and recommend the right deal for you.
While some products are only available through intermediaries, a handful of banks don't sell their mortgages via brokers and instead only offer them directly to customers.
In this instance, a good broker should advise you if a better deal is available by applying yourself.