Understanding Your Mortgage

Fixed vs variable rates

A fixed-rate mortgage locks your interest rate for a set period — sometimes the entire loan, sometimes 2 to 10 years. A variable (or adjustable, or tracker) rate moves with a benchmark like the central bank rate.

• Fixed = predictable payments, but you pay a premium for the certainty.
• Variable = lower starting payments, but your payment can rise (sometimes sharply).
• In the UK, Canada, Australia and most of Europe, true 30-year fixed rates are rare — short fixed terms followed by re-fixing are the norm.

Loan term length

A longer term means lower monthly payments but a lot more interest paid in total. A 30-year loan can cost more than twice as much in interest as a 15-year loan on the same amount.

What's in your payment

Your monthly payment usually has up to four parts: principal (paying down the loan), interest, property taxes, and insurance. In some countries lenders also collect strata, HOA, or service charges.

Prepayment, overpayment and early-exit penalties

Most mortgages let you pay extra towards the principal, but the rules vary widely. Some have annual prepayment limits, some have 'early redemption charges' if you pay off the loan during the fixed period.

Refinancing or remortgaging

When rates fall — or your fixed period ends — refinancing means replacing your existing mortgage with a new one, usually with a different lender. The cost of refinancing (fees, valuations, legal work) needs to be weighed against the monthly savings.