How a Mortgage Works

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What is a mortgage?

A mortgage is a loan used to purchase property, secured against the asset itself. This means the lender has a legal claim over the property until the loan is fully repaid.

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How does the mortgage process work?

The buyer contributes a deposit and borrows the remaining amount from a lender. The loan is then repaid over an agreed term through monthly payments.

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What do monthly repayments include?

Each payment is made up of:

• Interest — the cost of borrowing

• Capital — the amount reducing the loan balance

Over time, more of the payment goes toward reducing the capital.

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How much can you borrow?

This depends on your income, financial commitments, and the lender’s affordability assessment. A deposit is also required, typically between 5% and 25%.

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What types of mortgages are available?

• Repayment mortgage — gradually pays off the loan and interest

• Interest-only mortgage — lower monthly payments, with the full loan repaid at the end

• Fixed rate — stable payments for a set period

• Variable rate — rates can change with the market

 

What affects your interest rate?

Your rate is influenced by your credit profile, deposit size, loan-to-value ratio, and wider market conditions. Lower risk typically results in better rates.

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What happens if repayments are missed?

Missed payments can lead to penalties and, in serious cases, repossession of the property.

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Why is mortgage structure important?

A mortgage is not just about securing finance — it must align with your wider financial position. The right structure ensures stability, protects cash flow, and allows for future flexibility such as refinancing or portfolio growth.