How a mortgage works

A mortgage is where you borrow money secured against your home. This means if you do not keep up with the payments the lender can take possession of the property and sell it to pay back the loan.

The loan is spilt into two parts the Capital and the Interest.

The capital is the amount you borrow to pay for your home
The Interest is the amount the lender charges for lending you the money

You will pay back the loan over a set period of time.
There are different ways in which you pay back the loan.

Interest only mortgages
You will make monthly payments paying back only the interest charged. The Capital repayment is therefore deferred until the end of the term. You will need to arrange a way to pay back the capital normally in the form of a payment vehicle such as an Endowment policy, ISA or a Pension plan.

Repayment/ Capital & interest mortgages
You will make monthly payments which are split into two parts. Firstly it will pay back part of the loan amount and secondly pay the interest charged.

It is also possible to have a combination of the two.