A mortgage is a long-term loan used to purchase property. The property itself acts as security (or collateral) for the loan, which means the lender can repossess it if you fail to keep up with repayments. Most people cannot afford to buy a home outright, so a mortgage lets you spread the cost over a period of typically 25 to 35 years.
When you take out a mortgage, you borrow a percentage of the property’s value from a lender — usually a bank or building society — and pay back the loan in monthly instalments that include both the capital (the amount borrowed) and interest (the cost of borrowing). The portion you pay upfront from your own savings is called the deposit.
Mortgages come in many forms. You might choose a fixed rate for payment certainty, a tracker that follows the Bank of England base rate, or an interest-only arrangement where you only pay the interest each month and repay the capital at the end. The right choice depends on your circumstances, risk appetite, and financial goals.
You buy a house for £250,000 with a £10% deposit of £25,000. You borrow £225,000 on a 25-year repayment mortgage at 4.5%. Your monthly payment would be around £1,251, and over the full term you’d repay approximately £375,300 in total — the original £225,000 plus roughly £150,300 in interest.
Key Points
- A mortgage is a loan secured against your property — the lender can repossess if you default
- You repay the loan in monthly instalments over a typical term of 25 to 35 years
- The deposit is the portion of the purchase price you pay from your own funds
- Interest is the cost the lender charges you for borrowing the money
- Different mortgage types (fixed, tracker, variable) suit different circumstances