Decided to buy a house and need a Mortgage? What's Next…

Find out how a mortgage works and how you go about getting one.

Decided to buy a house and need a Mortgage? What's Next…


The type of mortgage to allow you to own your own home is a residential mortgage. A residential mortgage is a specific type of secured loan. It is a loan you use to buy a house. The house is used as collateral.

  1. You have to pay a cash deposit (starting from 5% of the value of the property)
  2. The bank then pays the remainder of the property’s value
  3. You then pay the mortgage (with interest) back to the bank in monthly instalments over a set number of years (the term of the mortgage) 


There are two main types – repayment mortgages and interest only mortgages.

Repayment mortgages are when you pay back a bit of the loan plus interest while interest only mortgages mean you only pay the interest on borrowing that money.

Those categories have different types of deals – tracker mortgages, fixed-rate mortgages, discount mortgages and off-set mortgages.

The type of mortgage you choose is valid for set number of years. As with any type of loan, the shorter the period, the higher the monthly payments are (but you’ll pay less interest).

The type of mortgage listed above is valid for a set period of time (between 2 and 10 years and known as the introductory period) and then all mortgages move to standard variable rate mortgages (SVR). This is when people usually move deals and re-negotiate, moving to a new deal and getting a new introductory deal. 


There are important factors that will affect the mortgage you want and can get:

  • The amount of money you have saved for the deposit (i.e. the percentage of the property you yourself will own or LTV Loan to value)
  • The length of time you want the mortgage for (mortgage Term)
  • The type of property you are buying – a new-build? A house? A flat?
  • How much you can afford in monthly payments (affordability checker)
  • Whether you’re using any schemes – like Help to Buy etc.


Finding the right mortgage is complicated and time-consuming, so you can opt to use a broker. He/she is a professional adviser who will find and apply for a deal on your behalf.

Interestingly, some mortgages can only be applied for through a broker, but in other cases it’s the other way round and the deal is for the individual applicant. However, on balance, a whole-of-market broker knows the entire mortgage market and will be able recommend the best deal for you. 


You’re always going to have to pay interest, but interest rate shouldn’t be your deciding factor. Mortgages can have other fees attached – the “arrangement fee” (cost to set up the mortgage) and they’re often higher on low interest mortgages. Depending on how much cash you have liquid, a higher interest rate with low arrangement fee might be better for you. Read the small print too as mortgages have early repayment penalties / don’t allow you to port the mortgage if you move etc. It’s like shopping for clothes – you have to find the mortgage that best fits your financial body.


To go and view properties, you can opt to attain an AIP (agreement in principle). It will be one of the first questions an estate agent asks you. An AIP is a statement from a bank saying that they will, in principle, lend you X amount of money, subject to full financial checks. On one hand, having an AIP proves your budget and shows sellers you're serious. On the other hand, applying for it could make a dent in your credit score.

Once a lender has given you a formal offer, it will only be valid for a short amount of time (usually 3-6 months). If your house purchase doesn’t complete within this time, you'll need to ask for an extension and sometimes you might have to do the bank's affordability assessments again.

Mr Financial’s top tip? As soon as your mortgage is agreed, put a six-month-before-expiry reminder in your calendar so you can start searching for a new deal ad move before the mortgage reverts to the standard variable rate.

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