EyeOnWhat it means
Most mortgages are repaid in monthly instalments over 15 to 35 years. Each payment covers interest and, on a repayment mortgage, part of the original amount. Some mortgages are interest-only, where the borrowed amount is repaid separately at the end.
A deposit (or down payment) is paid up front. The loan-to-value ratio compares the loan with the property's value; borrowing 200,000 against a 250,000 property is an 80% loan-to-value.
How it works
Rates may be fixed for a set period, variable, or tied to a benchmark. When a fixed period ends, many borrowers move to a new deal or a standard rate.
On 200,000 over 25 years at 5%, a repayment mortgage would cost about 1,169 a month, or roughly 350,754 in total, which includes about 150,754 of interest. Different rates and terms change this considerably.
A simple example
If the rate were 4% instead of 5% on the same loan and term, the monthly payment would be lower, and the total interest would be much lower. Moving the term from 25 to 30 years lowers the monthly payment further, but increases the total interest. Try the figures in the mortgage calculators to see the effect.
Things worth checking
- Upfront costs go beyond the deposit and can include fees, taxes and legal costs.
- Think about how payments would change if rates rose at the end of a fixed period.
- Check early repayment charges and overpayment allowances.
- Because the property is security, falling behind on payments has serious consequences.
How it varies by country
Mortgage types, taxes, protection rules and lending criteria differ widely by country.