What is a Mortgage Exactly?

A mortgage is a term that describes a property loan - a specific loan that allows you to borrow capital in order to buy a home or property. The loan is secured on the property, and you pay back what you owe over an agreed amount of time. The term ‘secured’ means that if you are unable to keep to the repayment schedule and the lender is convinced that they will never receive the monies back, they have the right to ‘repossess’ your property and sell it themselves in order to recover their money.

Mortgages are usually taken out over a long time - generally about 25 years - but depending on your situation and salary you can pay the mortgage back over a shorter or longer period of time. The sum you borrow is called the ‘capital’, and you don’t just pay that amount back, you also have to pay the interest. This gives you two types of mortgage - the ‘repayment’ mortgage where you repay the capital and the interest together, or the ‘interest only’, where you pay back the interest over 25 years (for example) and organise another investment to repay the capital at the end of the mortgage term.

There are a lot more choices to be made - for example how you want the interest to be charged. We have gone into these subjects in more detail in other FAQs, please refer to the specific questions for more in-depth discussion.