Mortgages: the biggest debt most people take

Lesson 5 of 11 in our free Good Debt vs Bad Debt guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Good Debt vs Bad Debt is free for everyone.

Questions you'll answer

Illustration: a £200,000 home, £20,000 deposit, £180,000 repayment mortgage at 4.5% over 25 years. Roughly what's the monthly payment?

In that example, what's the loan-to-value (LTV)?

Your payment stays the same for an agreed number of years → Fixed. Fixed: certainty for the deal period.
Your payment can rise if interest rates rise → Variable. Variable and tracker rates move with rates.
Easier to budget for in the deal period → Fixed. You know the number.
Can fall when rates fall → Variable. The flip side of the risk.
Fact: “House prices can fall, leaving some owners owing more than their home is worth.” — That's negative equity. It's why a home is a home first, not a guaranteed investment.
Myth: “Lenders will lend whatever you ask for if your credit file is clean.” — They run affordability checks and often lend around 4 to 4.5 times income. Borrowing the maximum isn't the same as affording it.
Fact: “When a fixed deal ends, the payment can jump if you don't arrange a new deal.” — Many mortgages move to the lender's standard variable rate. Diarise the end date.