Understanding Mortgages

Choosing the right mortgage can be a testing experience, however this “jargon buster” should make things a little easier…

With such a big commitment and the sums of money involved, buying a house is often a stressful time. The lack of clarity can be frustrating to say the least. This is Money have put together a guide to some of the more confusing mortgage terminology to help you when researching. Here are some useful points to read up on…

Early Repayment Charge

You can actually be penalised for paying off your mortgage early. Check with your mortgage lender before taking out a loan for the conditions on early repayment. The reason for the charge is that the lenders may not make as much money from your interest as they forecast when you first took out the mortgage. If you overpay or repay early, you could incur extra costs.

Fixed-Rate Mortgage

When you take out a mortgage, your monthly repayments can fluctuate depending on the rate of interest. When you take out a fixed-rate mortgage however, the rate of interest you take out on your loan is fixed at a certain amount. Depending on your agreement, the amount can be fixed for two, three five or ten years. When this period expires, the interest rate reverts to your mortgage lenders standard variable rate.

Tracker Mortgage

Where fixed-rate mortgages keep interest rates stationary, tracker mortgages’ rates can vary from month to month. Usually, the rate will match the Bank of England base rate with a margin added on. When this base rate goes up, so do the borrower’s repayments and when rates fall, repayments go down. These types of repayment structures are available as introductory periods or can be taken out for the lifetime of the mortgage and will often not incur early repayment charges.

Home Equity

This refers to the percentage of the house which belongs to you, not including any outstanding mortgage. Whatever percentage of the overall property you pay as a deposit, you immediately own that amount. The more of your mortgage that you pay, the more equity you have.


No matter how long your mortgage term is, you can switch providers during your contract. If you think your rates are too high and see a deal which could save you money, you are free to make the change. You may incur early repayment charges, but this depends on your current mortgage and whether you have agreed a fixed rate or fixed term contract.

This is Money have more definitions and explanations over on their website. If you would like more advice and information on mortgages, please get in touch.