How do mortgages work?

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What is a mortgage?

When buying a new home, most people don’t normally pay for it all in one go. Instead, they get a long term loan to spread the cost. This is called a mortgage.

Mortgages are generally available from banks and other financial institutions, known as lenders. It’s useful to learn more about how mortgages work before you apply.

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How long can a mortgage be?

When you take out a mortgage, you’ll agree a mortgage term with your lender. Think of the mortgage term as the lifespan of your loan – the time you’ll have to pay off the mortgage, along with its interest and fees, in full.

  • The average mortgage repayment term is 25 years. However, some borrowers may choose a longer term to pay lower monthly costs. In 2023, for example, the number of first-time buyers taking out a 31-35 year mortgage hit a record high.
  • It's important to consider the mortgage term carefully. A longer mortgage term may be more affordable on a monthly basis, as you're spreading the cost across a longer period. But this would also mean the total cost of your mortgage is greater, as you would pay additional interest.
  • With some mortgages, you can pay more than the agreed amount each month. This is a useful way to pay off the mortgage balance faster. It can also save you interest. With NatWest, you can pay up to 20% of your outstanding balance without incurring charges if you’re on a fixed or tracker rate deal. Find out more about your options with our overpayment calculator.

How do payments on a mortgage work?

After your lender agrees to provide the funds for your mortgage, you’ll get a breakdown of how much the monthly payments will be. How these mortgage repayments work will depend on the type of mortgage you choose.

  • With a fixed rate mortgage , these payments will stay the same for a set amount of time. This period is normally 2-5 years, but could be up to 10.
  • If you get a tracker mortgage, your payments will vary in line with the Bank of England base rate. That means if the base rate goes up, so will your monthly payments.
  • Once the initial fixed or tracker rate ends, you’ll move onto a Standard Variable Rate unless you move to a new fixed or tracker rate mortgage – this is known as remortgaging. When you move onto a Standard Variable Rate, your monthly payments will tend to be higher and will change in line with the Bank of England base rate.

A repayment mortgage – also known as a capital and interest mortgage – is the most common type of mortgage. You make payments each month for an agreed term. By the end of the term, you’ll have paid off the full loan amount and its interest – assuming you keep up with your repayments. 

An interest-only mortgage is where you only repay the interest on your mortgage each month. Then, at the end of the term, you’ll need to repay the original mortgage amount in a lump sum.


If you get a mortgage with NatWest, you’ll need to set up a Direct Debit. This gives us permission to take the monthly mortgage payments out of your bank account on an agreed date. 

How to get a mortgage

Getting a mortgage can be a daunting prospect, particularly if you're a first time buyer. But there’s lots of information and helpful tools you can use along the way to help you understand mortgages and feel more confident.

  1. 01

    Find out how much you can borrow: The first place most people start is a mortgage calculator. This helps you get a quick indication of how much you may be able to borrow and gives you an idea of what different borrowing amounts and terms might cost you.

  2. 02

    Save your deposit: You also need to consider a mortgage deposit at this point. You'll need a deposit of at least 5% (a 95% LTV mortgage) of the purchase price to be potentially eligible for one of our mortgages. However, the higher your deposit, the less money you will need to borrow, so you may also want consider a 90% LTV mortgage or higher

  3. 03

    Get an Agreement in Principle: Once you're house-hunting, or looking to remortgage, the next step is to get an Agreement in Principle. This is a personalised indication of what a bank may be able to lend to you. It can be used with sellers and estate agents to demonstrate you may be in a financial position to purchase a property.

    You can find out more about an Agreement in Principle (sometimes known as a Mortgage in Principle or Decision in Principle), what they're for and how you can get one.

  4. 04

    Apply for your mortgage: Once you have your Agreement in Principle, found a property and the seller has accepted your offer, it's time to apply for your mortgage. Find out more about what you'll need to apply for a mortgage and applying for a mortgage with NatWest.

  5. 05

    Agree a completion date: If your mortgage is approved, you will generally work with a conveyancer, estate agents and other relevant third parties towards a 'completion date' or 'settlement date', when legal ownership of the property is transferred to you.

    At this point your conveyancer will 'drawdown' the money you are borrowing to complete the transaction.

What does 'drawdown' mean?

Drawdown is when your mortgage provider provides the funds to your legal representative to pay a seller of a property and effectively completes the purchase. After drawdown, you will be obliged to repay the money borrowed together with any interest and fees charged. You will need to comply with the terms of your mortgage agreement.

How does Stamp Duty work?

Stamp Duty is a type of tax you pay when buying a property (or land) in the UK. In England and Northern Ireland it’s called ‘Stamp Duty Land Tax’, in Scotland ‘Land and Buildings Transaction Tax’ and in Wales ‘Land Transaction Tax’.

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What does remortgaging mean?

Remortgaging is the process of moving your mortgage to another lender and starting a new mortgage deal. Many people choose to do this at the end of a mortgage deal to avoid early repayment charges.

Mortgages often have an introductory interest rate for the first 2-5 years, which then expires. After that your mortgage would move to the 'Standard Variable Rate'.

However, there are other reasons and scenarios where remortgaging could be a good idea. You can learn more on our remortgaging reasons and stories page.

How mortgages work: FAQs

More guides for first time buyers

A guide to buying your first home

New to the housing market? Learn more about how the buying process works for first time buyers.

What is a mortgage deposit?

Find out how mortgage deposits work and how much you may need.