Choosing a mortgage deal

The information in this guide was last updated on 26/02/2014

It’s important to keep in mind what a mortgage is before you decide how you want to pay it back.

A mortgage consists of two parts:

  • the capital – this is the amount borrowed
  • the interest – this is the amount charged by the lender calculated on the amount borrowed

There are three main ways to repay your mortgage:

1. Repayment mortgages

This is the most common way of repaying your mortgage. You pay off some of your loan plus interest each month. At the end of the agreed term, your mortgage will be fully paid off.

2. Interest only mortgages

With an interest only mortgage you only pay the interest on what you have borrowed each month. This usually means lower payments, but at the end of the mortgage term you’ll still owe all the capital and will need to have a way of paying that back. 

To do this, you’ll also need to have a separate repayment strategy to repay the amount borrowed, such as a pension or an ISA. Some lenders have stopped offering interest only mortgages.

3. Part and part mortgages

These split your mortgage into an interest only part and a repayment part. At the end of the mortgage term you'll still owe capital on the interest only part of the mortgage so will need a repayment strategy to cover this.

Thinking of getting a new mortgage with a different lender when you move? See our guide to Remortgaging.

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How much can you borrow?

Lenders will base their decision on a number of factors including:

  • your income and current outgoings
  • your credit rating 
  • your loan to value ratio (the comparison between the amount you want to borrow and the value of your home expressed as a percentage)
  • the current value of your home.