Buyers Guide - Mortgage Terms

It's only natural when buying a property to be more concerned with its size than with studying the small print on the mortgage agreement. But the wrong mortgage can cost you tens of thousands of pounds more than it should.

Mortgage providers often offer special deals to encourage people to take out a mortgage with them, and these are usually in the form of short-term introductory benefits on your mortgage. These benefits might be a discounted rate, a fixed rate, or a capped rate for a certain number of months or years, known as a 'tie-in period'. Mortgage providers will want you to stay with them for as long as possible, and, because of this, many mortgages may contain a 'redemption penalty'. This means that if you want to pay off your mortgage early, or move it to another mortgage provider, you will have to pay a fee.

Basically, the longer you borrow the money for, the more interest you'll pay. The other side of this is that the longer you take to pay back the loan, the less you have to pay each month.

The typical mortgage is lent for 25 years, so you need to be in your first property for five years in order to reap the benefits. This is because, if you have a repayment mortgage, most of your repayments during the first years are spent only paying interest. Also the cost of moving (solicitors, stamp duty, and so on) means that it's uneconomical to move regularly.

For example, if you pay off a £40,000 mortgage in 15 years, rather than the normal 25 years, you'll have higher monthly payments for those 15 years, but you could save a staggering £20,000 in interest payments.