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A mortgage is a loan secured on your home, usually (but not always) used to buy the property itself, generally long-term and for a fixed period (typically 25 years); it can often be paid off early or, sometimes, extended beyond the original loan period.

There are many different mortgages, split into three basic types:

Repayment mortgage

Your payment includes both capital & interest; usually the same amount each month throughout the period of the loan, the ratio of capital to interest increases over time (in the early years very little capital is repaid each month.)

You may be able to increase the amount paid each month, so increasing the capital portion of the repayment, which would mean your loan would be repaid earlier (and you would save on interest.)

interest-only mortgage

As the name implies, you only pay the interest on the loan every month, so that, at the end of the term you still owe the original (full) amount of the loan. To cover the 'capital' (ie the loan itself), you must have in place a savings plan, such as an ISA or endowment. This should be kept under review, especially in light of the current situation, where many endowments have under-performed over the last few years and are several thousand pounds short of their target.

Flexible mortgage

Designed to help you with your cash-flow, these allow an increase or decrease in your monthly repayment.

The 'new kid on the block' - the offset mortgage is proving increasingly popular. All the money in your various accounts (with the same lender) is taken into consideration. This is then 'offset' against the loan when calculating the interest charged. The mortgage element will still be one of the above - repayment, interest-only or flexible.

For example:

A husband and wife have a joint mortgage of £75,000. The man has £500 in his current account; the woman has the same. They have £5000 in their joint savings account. This total of £6000 will be 'offset' against the £75,000 borrowed, so they effectively pay interest on £69,000. They do not, of course, earn interest (as well) on these accounts.