What is a mortgage?

Welcome to our Mortgage Basics page where we answer the question “What is a mortgage?”.  So let’s get started…..

What is a mortgage?

The dictionary defines a mortgage as:

What is a mortgage?

That’s a pretty decent description but a bit “wordy” so let’s break it down:

  • It’s a legal agreement between a person (or people) and a lending institution, commonly a bank or building society.
  • The bank lends money in return for payments of interest.  The person (or people) buy a house with the loaned money.
  • As a guarantee that the bank will get it’s money back it takes partial ownership of the house purchased.
  • Once all the money has been repaid the bank releases it’s ownership.  The house now becomes solely owned by the person (or people).

What makes a mortgage different from any other loan?

A mortgage is essentially just a loan used to buy a property.  However there are some common differences from most other types of loans.

  • Mortgages are used to buy houses so they are commonly MUCH larger than most other types of loan.
  • Mortgages are usually taken over much longer periods than loans, 25 years or more is common.
  • Mortgage interest rates are usually variable for some of the term of the mortgage (short term loans are more often at fixed interest rates).
  • The mortgage is “secured” on your house, i.e. if you fail to make the required payments the bank can take legal possession of your home to settle your debt with them.
  • Mortgages are often “remortgaged“, i.e. the mortgage is swapped for another mortgage part way through the term if better rates are available.

Find out more about mortgages in the remainder of our online guide.  We have sections on repayment and interest only mortgages, mortgage interest rates, choosing the term of your mortgage, first time buyers, remortgaging, buy to let mortgages.  We have also developed some great mortgage tools.  Check out our advanced mortgage repayment tool and our revolutionary mortgage risk model (find out what risks you might be taking with your mortgage).