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Most people see a mortgage as a long term loan to help buy their home. But the word itself means any loan that's 'secured' against property. This means when the property is sold, the lender has 'first charge' - or in Scotland, a 'standard security' - and must be paid first. With your home as security, the lender is usually able to offer you a lower interest rate than you find with other types of loan.
Types of MortgageThere are many different types of mortgage on offer to suit many different purposes. Here's our guide to the most popular options. Remember, your adviser or your lender can give you full details and provide all the help you need to choose the mortgage that's best for you.
Standard Repayment (Variable)A variable-rate repayment mortgage is the most common type of loan. The interest rate goes up and down during the lifetime of your mortgage, broadly in line with interest rates in the economy as a whole.
This means that when the interest rate goes up, the amount you have to pay also goes up. When the interest rate falls, your payments come down.
Fixed rateA fixed rate loan gives you a guaranteed rate of interest for an agreed period of time.
This can be very comforting if you have a large loan or a tight budget, because it guarantees the payments won't rise during the fixed period.
But if interest rates fall, your mortgage payments will stay the same until the end of the fixed period, so you should think carefully about how long you want to be locked into the same rate.
Most of the larger lenders will have several deals available, offering fixes of anything from 1 to 10 years, or even longer.
Discounted RateSome lenders will offer a discount on the standard interest rate. This applies for a limited period, the interest rate simply changes to the standard variable rate.
Discounted rate mortgages often have early repayment charges if you want to switch to a different type of loan, or repay all or part of your mortgage during the intial period.
Cashback FeatureSome lenders offer 'cashback' mortgages where you receive a percentage of the loan shortly after completing your purchase.
These deals can be very appealing, particularly to first time buyers who may need to buy carpets, furnishings and so on.
Cashback mortgages often have early repayment charges if you want to switch to a different type of loan, or repay your mortgage during the intial period.
Early Repayment ChargesFor certain mortgages (such as capped, fixed, discounted or cashback loans) you may have to pay a charge if you pay off all or part of your mortgage early.
These charges may apply throughout the term of the mortgage, or for only a few years at the start. You can get details from your lender and they will be confirmed in your mortgage offer. As a result, you should make sure you read the offer carefully.