Understand Your Mortgage Before You Choose
A mortgage is one of the biggest financial commitments most people will ever make. Therefore, understanding how mortgages work can make it much easier to compare your options and make informed choices.
At Energility, we want to make mortgages easier to understand.
Please note: Our comparison service is not yet live. We are currently focused on building Energility and creating high-quality, useful content to help you make informed choices. Our compare and switch, loans provision and insurance services will launch in January 2027 and our mortgage advice service will launch in April 2027.
In the meantime, please feel free to explore the website and make full use of our free advice, guidance and resources to help you understand your options and make informed choices.
What Is a Mortgage?
A mortgage is a loan used to buy a property or raise money against one you already own.
Usually, you borrow money from a bank, building society or another mortgage lender. You then repay the money, together with interest, over an agreed period.
For example, you might borrow £180,000 and repay it over 25 years.
However, the amount you ultimately pay will depend on several things. These include your interest rate, mortgage term, fees and any changes to your mortgage along the way.
Therefore, it is important to consider the overall cost, rather than looking only at the monthly payment.
How Much Can You Borrow?
Mortgage lenders need to decide whether they believe you can afford the mortgage.
As a result, they will usually look at your income, regular spending, existing debts and wider financial circumstances.
Your credit history can also be important.
However, lenders do not all assess applications in exactly the same way. One lender may therefore offer a different amount or deal from another.
In addition, the amount you can borrow does not necessarily mean it is the amount you should borrow.
Think about what monthly payment would remain comfortable if other household costs increased.
Understanding Your Deposit
When buying a home, you will usually need to provide some of the purchase price yourself.
This is your deposit.
For example, if a property costs £200,000 and you have a £20,000 deposit, you would need a £180,000 mortgage.
Your deposit would represent 10% of the property’s value.
Generally, a larger deposit means you need to borrow a smaller percentage of the property’s value. This can sometimes give you access to a wider choice of mortgage deals.
What Is Loan-to-Value?
You will often see the term loan-to-value, or LTV, when looking at mortgages.
LTV shows how large your mortgage is compared with the value of the property.
Using our earlier example:
Property value: £200,000
Mortgage: £180,000
LTV: 90%
If you borrowed £150,000 against the same property instead, the LTV would be 75%.
Generally, a lower LTV can give lenders more security. As a result, lower-LTV mortgages may sometimes offer more attractive rates.
However, rates and lending rules change, so always compare the actual products available to you.
Fixed or Variable?
One of the main choices when considering a mortgage is how the interest rate works.
Fixed-Rate Mortgages
With a fixed-rate mortgage, your interest rate is fixed for an agreed period.
For example, you might choose a two-year or five-year fixed deal.
During that period, your mortgage payments are generally protected from changes in interest rates, provided the terms of the mortgage do not change.
This can make budgeting easier.
However, fixed deals can also have restrictions. For example, you may have to pay an early repayment charge if you repay too much or leave the mortgage during the fixed period.
Therefore, flexibility matters as well as the rate.
Variable-Rate Mortgages
With a variable mortgage, the interest rate can change.
This means your monthly payment may rise or fall.
There are several types of variable mortgage, including tracker mortgages and lender variable rates.
For some borrowers, this flexibility may be attractive. However, you need to be comfortable with the possibility of higher payments.
The Interest Rate Is Not the Whole Cost
A low interest rate can make a mortgage look attractive.
However, it does not necessarily make it the cheapest mortgage overall.
Some products have arrangement, booking, valuation or other fees. In addition, incentives such as cashback or free legal work can affect the overall value.
For example, a mortgage with a slightly higher interest rate but a small fee could sometimes work out better than a lower-rate product with a large fee.
Therefore, when comparing mortgages, consider both the rate and the overall cost.
Think About the Mortgage Term
Your mortgage term is the period over which you plan to repay the loan.
A longer term can reduce your monthly payment because the repayments are spread over more years.
However, there is a trade-off.
Because you are borrowing for longer, you may pay considerably more interest overall.
A shorter term usually means higher monthly payments. On the other hand, you may repay the mortgage sooner and pay less interest in total.
So, the right term involves balancing affordability today with the long-term cost of borrowing.
What Is a Remortgage?
Remortgaging usually means replacing your existing mortgage with a new one, either with your current lender or another provider.
People consider remortgaging for many reasons.
For example, you may be approaching the end of a fixed deal. Alternatively, you may want a different interest rate, greater flexibility or to change other features of your mortgage.
Some homeowners may also want to borrow additional money against their property.
However, changing mortgages can involve fees and charges. Therefore, it is important to consider the whole cost before deciding whether a new mortgage offers better value.
What Is a Product Transfer?
You do not always have to change lender to change your mortgage deal.
Your existing lender may offer a product transfer.
This means moving from your current mortgage product to another product offered by the same lender.
The process can sometimes be simpler than moving to a new lender.
However, that does not automatically mean it offers the best value. Therefore, it can still be useful to understand what other options may be available.
Early Repayment Charges
Some mortgages include an early repayment charge, often shortened to ERC.
You may have to pay this if you repay the mortgage, switch to another lender or make repayments above an allowed limit during a certain period.
These charges can sometimes be substantial.
Therefore, check the early repayment rules before choosing a mortgage and again before making major changes to an existing one.
Overpaying Your Mortgage
Some mortgages allow you to repay more than your normal monthly payment.
This is known as overpaying.
Overpayments can reduce your mortgage balance faster. As a result, they may reduce the amount of interest you pay and could help you become mortgage-free sooner.
However, lenders may place limits on penalty-free overpayments.
So, always check the rules of your mortgage before paying extra.
Before Applying for a Mortgage
Preparation can make the mortgage process easier.
For example, it can help to review your income, spending, debts and credit commitments before applying.
You may also want to think about:
- How much deposit you have
- How much you can comfortably repay each month
- The mortgage term
- Fixed versus variable rates
- Product fees
- Early repayment charges
- Overpayment options
- Your plans for the property
- How your finances could change in future
Most importantly, avoid choosing a mortgage based on one figure alone.
A good mortgage choice needs to work with your wider financial circumstances.
Mortgages and Energility
Mortgages will become part of Energility’s wider comparison offering.
Our aim is to help people compare and better understand important household and financial services across five main areas:
Energy · Utilities · Mortgages · Insurance · Loans
However, we are introducing these services gradually.
Therefore, mortgage comparison and mortgage services are not currently available through Energility.
We plan to introduce mortgage services over the next few months. In the meantime, we will continue building our free mortgage guides so you can learn about mortgages before comparing products or seeking professional advice.
Information Is Not Mortgage Advice
Our mortgage content is designed to provide general education and guidance.
It does not recommend a particular mortgage, lender or course of action. Nor does it assess whether a particular mortgage is suitable for your personal circumstances.
Mortgages are secured against property and involve significant financial commitments. Therefore, you may wish to seek advice from a suitably qualified mortgage adviser before making a decision.
Learn First. Compare Better.
At Energility, we believe comparison becomes more useful when you understand what you are comparing.
The lowest interest rate may not always provide the best overall value. Similarly, the lowest monthly payment does not necessarily mean the mortgage will cost less.
So, look at the rate, fees, term, flexibility and overall cost.
Then, you can compare your options with greater confidence.
Energility
Understand More. Spend Less. Live Better.