Understanding mortgages

A mortgage is a loan that’s normally used to buy a home. It usually comes from your bank or building society, and is paid back over a long period of time (term). The amount of loan you receive is called the capital and the lender will add interest to this amount.

There are two main categories of mortgage:

  • Repayment mortgages – you pay back the actual mortgage loan (capital) and the interest on that loan.
  • Interest-only mortgages – you only pay the interest for the duration of the loan. At the end of the term, you pay the amount owed in full. This means you need to have a way of paying back the capital when the term ends. Types of interest-only mortgages include endowment mortgages, ISA mortgages and pension mortgages.

Having cancer may not affect your ability to get a mortgage. You’re not usually asked questions about your health when you apply for one, however your lender may ask whether your income or expenses might change. This is because they need to assess whether you can afford the mortgage payments.

What is a mortgage?

Here are some important things to know about mortgages:

  • A mortgage is a loan that is normally used to buy a home or other property.
  • The loan usually comes from a bank or building society. They are called the lender.
  • Most people pay the loan back over a long period of time, usually 25 or 30 years. This time period is known as the term. You normally pay back an amount every month.
  • The lender will add interest on to your loan. This means you pay back more than you borrowed.
  • The loan you receive is called the capital. You repay the capital, plus the interest.

A mortgage is secured against the property you are buying until it is paid off. This means that the lender can take back the property and sell it, if you do not keep up with your monthly payments. This is called repossession. But repossession should only be a last option. If you are having financial problems, your lender should help you as much as possible.

Getting a mortgage when you have cancer

When you apply for a mortgage, you should not usually be asked any questions about your health. If your cancer diagnosis does not affect your employment or income, your application should be straightforward. But they may ask if you are expecting your income and spending to change in the future.

The lender will need to consider whether you can afford the mortgage payments. To do this, they will check your income and spending when you apply. The lender will need to see evidence of your income, such as pay slips or bank statements. They will look at how much you spend each month on:

  • essentials, such as bills, food and travel
  • non-essentials, such as socialising and holidays.

This is called an affordability assessment. The lender will also look at how your mortgage payments would change if interest rates went up. You can go online to find out how much money a mortgage lender is likely to lend you.

A mortgage calculator tool is available on the Money Advice Service website.

You can apply directly to a lender or use an independent mortgage broker. A broker will be able to compare the different mortgage deals available and recommend the best deal for you, depending on your situation. A family member or friend may be able to recommend a broker, or you can find one in your area by visiting one of these sites:

Mortgage brokers should be approved by the Financial Conduct Authority (FCA). You can check that individuals and companies are listed on the FCA register.

Main types of mortgage

There are different types of mortgage. The two main types are:

  • repayment mortgages
  • interest-only mortgages.

Whichever type of mortgage you have, it’s important you keep up to date with your regular payments. Your lender will send you a statement once or twice a year. This will show how much you have paid, the monthly payments that are due, and what is left to pay. Most lenders also have online banking, so you can see the up-to-date details for your mortgage at any time.

If you are worried or want to ask questions, always contact your lender.

Repayment mortgages

This is the most common type of mortgage. Your monthly payments are calculated so that you pay back the capital and the interest on the loan. At the end of the term, you will have paid the mortgage off in full and own your property.

Interest-only mortgages

With these mortgages, instead of paying the capital and the interest, you only pay the interest. Monthly payments are cheaper, but at the end you will still owe the full amount of capital you borrowed. This means you need to have a way of paying back the capital when the term ends.

It is now very difficult to get an interest-only mortgage. This is because of concerns about people not having a plan for paying the mortgage back at the end of the term. To get this type of mortgage now, you usually need a high income and a large amount of equity in your property. The equity is the difference between what you have left to pay on any mortgage or loan on your property, and what the property is currently worth.

However, you might have an interest-only mortgage that was taken out before the new rules applied. If you do, you should have received a letter from your lender reminding you to plan how you will pay back the capital at the end of your mortgage term. You might plan to do this through:

  • an endowment mortgage (see below)
  • another type of investment (see below).

Endowment mortgages

With endowment mortgages, you usually pay the interest on the mortgage loan over a set period and you pay money into a savings plan. The savings plan is called an endowment insurance policy.

The aim is that the money in the endowment insurance policy will pay off the mortgage at the end of the term. The amount of money you get back is called the return. This return is linked to the stock market, which means the money you get back may not be the amount you were hoping for. And there is normally no guarantee that it will pay off your mortgage in full.

The endowment insurance policy gives you life insurance. It can sometimes include critical illness cover. The endowment insurance policy is not usually with the same company as the mortgage.

In the past, some people were sold endowment mortgages when they should not have been. They were given misleading advice. Because of this, endowment mortgages are no longer sold. However, you may have an endowment mortgage you took out some time ago. If so:

  • you need to make sure your endowment insurance policy will pay out enough to cover the mortgage at the end of the term
  • you should receive an annual update on how your endowment insurance policy is performing.

If you are concerned that your endowment insurance policy will not pay out enough money to cover your mortgage at the end of the term, you should talk to your lender about your options.

Other investments

Some people will have other investments that they plan to use to pay their mortgage. These might include individual savings accounts (ISAs) or a pension.


An ISA is a savings account that can save you money on tax. Each person can save up to £15,240 (for the 2016–17 tax year) in an ISA each year, and the interest you earn is tax-free.

There are two types of ISA:

  • Cash ISAs.
  • Stocks and shares ISAs (also called equity ISAs). These are investment accounts. Rather than putting cash into a savings account, you can invest your money in the stocks and shares of companies.

You can save the full amount for your mortgage in a cash ISA or stocks and shares ISA, or split your savings between the two.

If you save your money in a stocks and shares ISA, you could lose money if the stock market does badly. Cash ISAs are safer, but the returns are usually lower. You should always be aware that the value of investments can go down as well as up, and consider this when investing your money.

Your husband, wife or civil partner (but not an unmarried partner) can now inherit your ISA allowances when you die. This means they will get the value of your ISAs added to their own allowance in a one-off increase. They get this increase even if you do not leave the money or investments in the ISAs to them.

But if you do leave the investments to them, they can take over the ISAs with the investments included if they want to. This may be important if you have a joint mortgage.


Some people may choose to use some of their pension to pay off their mortgage.

You can access private pension savings from the age of 55. Since April 2015, pension savers have had more choice about what to do with the money they have saved in their pension. This includes the option to take it out as cash. Be aware that if you use pension savings to pay off your mortgage, you will have less to live on when you retire.

If you die before the age of 75 and you have not yet used your pension savings, they can be passed on tax-free in your will. This may be important if you have a joint mortgage.

Interest-only mortgages without a planned repayment method

Some people may already have an interest-only mortgage without having planned a way to repay the loan. They may decide to:

  • switch to a repayment mortgage
  • sell the property to repay the loan
  • repay the mortgage in the future with money from an inheritance.

Other types of mortgage

Equity-release mortgages

The difference between what you have left to pay on any mortgage or loan on your home, and what it is currently worth, is called the equity. Equity release allows you to exchange (‘release’) your equity for an amount of money.

Equity-release schemes are offered as either:

  • lifetime mortgages, which let you borrow money against the value of your home
  • home-reversion plans, where you are offered money for the sale of all, or part of, your home.

Lifetime mortgages and home-reversion plans are only available to people aged 55 and over. The mortgage will be paid back when you die or if you go into long-term care. If you sell the home, for example if you want to move somewhere smaller, you may need to pay a fee to have the mortgage paid early.

With an equity-release mortgage, you may pay back either:

  • only the interest on the loan during your lifetime
  • no interest during your lifetime, and the interest is added to the outstanding debt, which means the debt that will need to be paid back when you die or sell the house builds up.

You can find out more about equity-release mortgages from the Equity Release Council. This is a trade body for this type of mortgage.

Buy-to-let mortgages

If you buy a property to let to tenants, you will need to get a buy-to-let mortgage.

Whether or not you can get this type of mortgage depends on how much rent you would get if you let the property out, rather than how much you earn in your job. But the lender may also look at other factors to see if you can afford to get the mortgage.

These types of mortgage tend to need a bigger deposit than a regular home mortgage. They also have higher interest rates.

If you move out of your home temporarily, for example to stay with relatives while you have treatment, your lender may allow you to rent out your property for a set amount of time. This is called ‘consent to let’. Not all lenders will give this and some might insist that you change to a buy-to-let mortgage.

Letting an entire property without permission from your lender or without a buy-to-let mortgage is not allowed under the terms of most mortgages.

Make sure you have all the information you need about the type of mortgage you have or would like to have. You can call our financial guides on 0808 808 00 00 if you would like more information about the different types of mortgage available.

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