The basics

What is a mortgage?

At its simplest, a mortgage is a loan used to buy your home. Unlike many other types of lending (such as credit cards) a mortgage is secured against your home.

Paying back your mortgage – capital and interest

You borrow a sum of money – the capital. This is either paid back in part each month over a certain period of time, or all at once at the end of the term.

You also pay interest to the lender for the money you borrow. This is calculated as a percentage of the outstanding balance. Your monthly payment will either include an element of capital and interest or will only cover the interest part of the loan.

A note about APR

APR stands for Annual Percentage Rate. The APR takes into account not just the interest on the loan, but other charges you have to pay: for example, product fees.

The APR is calculated in the same way by all mortgage lenders, according to rules set down by the Financial Services Authority (also known as the FSA).

This can help you compare the costs of different mortgages.