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What are the different types of mortgages and how do they work?

For most of us, buying and selling a home is the biggest financial move we will ever make. To help with this, mortgages are there to make the purchase possible. Is getting a mortgage really as complicated as it seems though? With the help of this guide and our simple, fee-free mortgage tools, you can easily find the right option to suit you.

What is a mortgage and how do they work?

A mortgage is just the term for the loan used to buy your dream home. Most run for around 25 years but the terms can be more flexible. Mortgages are secured against your home which simply means that if you can’t make your loan payments, the lender has something to sell off to get their money back. In other words, your home would be in the possession of the lender should you default on your payments.

On top of paying the loan back to the lender, there is interest to pay each month. Mortgage interest comes in two forms - fixed or variable. You have the choice in which type to choose but just keep in mind that:

  • Fixed = steady monthly payments for a set period of time.
  • Variable = payments can go either up or down over the course of the loan

How is interest calculated?

To understand this more, here is a quick and simple example. The below is based on a £100,000 mortgage paid back over a 25 year period with an annual average interest rate of 3% fixed for the duration of the 25 years (you would normally get to update and ‘remortgage’ every 2-5 years). The interest calculation would be as follows:

  • £100,000 x 3% = £3,000 a year
  • £3,000 / 12 months = £250 a month

These figures show the interest only and the rates will vary depending on your mortgage lender and mortgage type. Check out our what type of mortgage should I get guide for more information on the type of mortgage that suits you. You can also check out the latest ‘best buys’ at the bottom of our mortgage page.

Where can I get a mortgage?

Make sure you do a good amount of research before you go straight into your local bank or building society. You can easily browse online for the best offers out there, or alternatively you can request a call back from our award winning partners London & Country who look at the whole market (and are fee free).

Is that it then?

In a nutshell that’s all there is to your mortgage. Just make sure before you are in a position to apply that you are well prepared for a few things.

  • Information about your income.
  • Information about your expenses.
  • Questions about your ability to make repayments.

Having these things to hand should make getting a mortgage a lot less stressful. But, if you have any concerns or would like to find out more about the process of buying or selling a home, give us a call on 0330 088 1422 and we will be more than happy to chat with you.