A mortgage is a loan from a bank, building society or other lender that you use to buy property. You normally repay the mortgage plus interest over a set period of time (the mortgage term), normally around 25-30 years.

This type of loan is secured on the property you’re buying, meaning that if you default on payments (fail to repay the loan), the lender could potentially repossess your home (take it back). This is usually a last resort, but it's important to understand that you won't own the property outright until the entire loan has been repaid.

You can use a property bought with a mortgage as soon as the purchase has been completed. Being able to continue doing so depends on you keeping up with the repayments each month.

The typical length of a mortgage in the UK is around 25-30 years, but the term can be shorter or longer, depending on your preference, income and age.

A longer term mortgage will allow you to keep your monthly costs lower, as it will spread out the repayments over a longer duration. But this also means that it takes you longer to repay the mortgage, and you’ll pay more interest overall as a result.

The LTV is the ratio between the value of your property and the amount you're borrowing. For example, if you take out £112,500 mortgage on a £150,000 property, the loan would be 75% LTV. You would therefore need a deposit of 25% (or £37,500).

All mortgages have a maximum LTV that it's possible to borrow, and typically, the higher the LTV (the more you borrow compared to the cost of the property), the higher interest rate you’ll pay.

First-time buyers tend to need to borrow a higher percentage of the property’s value than existing homeowners. This is because if you already have a home, you typically build up equity in the property as you repay the loan and when house prices rise. Equity can be used as a deposit when you find a new remortgage or move home.

APRC stands for Annual Percentage Rate of Charge and is a way of comparing different mortgages. It takes the overall rate charged over the lifetime of the mortgage, including any fees, and gives you a baseline mortgage rate comparison.

Mortgages generally offer a lower interest rate for the first two to 10 years then revert to the lender’s standard variable rate (SVR). Every lender has their own SVR and this is typically (but not always) the most expensive rate available.

The APRC uses both of these interest rates to show the real cost over the whole term of the mortgage. This helps you to find out whether the mortgage deal with the lowest initial rate is really the cheapest overall.

As this assumes you’ll keep the same mortgage for the whole term, it’s not always a useful way to compare deals, however. Looking at the total cost over the deal period can be a better way to find the cheapest option, if you're planning to switch mortgages when each deal period ends.

Most residential mortgages are only offered on a repayment basis, so if you're purchasing a home to live in, then you will most likely need to get a repayment mortgage.

This is because interest-only mortgages are much riskier, as you still owe the full loan amount at the end of the term. You need a repayment plan in place and if this doesn't work out, you'll need to sell the property at the end of the term.

However, if you're purchasing a buy-to-let property, interest-only mortgages are commonly available. Most landlords use interest-only mortgages, as it means the monthly mortgage repayments are lower, allowing them increased profit from the rent.

This can be used for property maintenance or saved towards repaying the full loan at the end of the mortgage term. Plus, landlords are usually happier to sell a investment property than residents are to sell their home at the end of the term, if necessary.

A repayment mortgage costs more each month than an interest-only mortgage. However, you will repay more interest overall with an interest-only mortgage, as you’re paying interest on the full capital amount for the entire mortgage term. 

For example, if you had a mortgage of £200,000 at 5% over 20 years, the total interest would be around £116,876 if you took out the mortgage on a repayment basis. If you took it out on an interest-only basis, you would end up paying £200,146 in interest and would still owe £200,000 capital at the end.

To make the home buying process smoother, you should consider getting a mortgage in principle. This is often known as a decision in principle (DIP) or an agreement in principle (AIP) by lenders.

A mortgage agreement in principle is a theoretical mortgage offer, assuming you are able to meet the full criteria when you go through the full application process.

It's useful when looking at properties, as it gives the impression that you are a serious buyer. It's also a good indicator that you will be approved for a mortgage down the line, so long as the information you provide when you apply for it is as accurate as possible.

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