A mortgage is just a type of loan taken out to buy property.

 
The important things that differentiates mortgages from other loans is that if the mortgage-holder fails to make repayments the lender can obtain possession of the property and then sell it to recoup its money.

 
The cost of the loan is composed of three components

  
1. The Capital

 
This represents the amount of money borrowed to buy the property

 
2. The interest

 
What the mortgage lender charges to loan out its money. This is essentially the lender’s profit.

 
3. The Fees

 
All the additional expenses the mortgage provider adds on to increase its profits

  
As the capital is determined by the value of the property the most important things to look for when choosing a mortgage are how much interest will have to be paid and how high are the fees.

 
What makes this complicated it that these costs are often in opposition – one mortgage may have low fees but high interest while an alternative will have high fees but low interest.

 
A second important consideration when choosing a mortgage is what type to go for. Although there are many different names used by mortgage providers nearly all mortgages can be put in one of two categories.

1. Repayment Mortgage (aka Capital and Interest Mortgages) 

This is the traditional type of mortgage whereby each repayment goes towards both paying off the interest and paying off some of the debt

2. Interest Only 

As the names suggests, only the interest is paid, while the size of the loan remains the same