CitizenshipRenting and buying a home30 min★★★ difficulty

How a mortgage actually works

A mortgage is the biggest loan most people ever take: hundreds of thousands of pounds, secured on the house itself. This lesson takes it apart — deposit, loan, interest rate, term — and shows why two people borrowing the same amount can pay wildly different totals.

Lesson overview

What you'll learn in this lesson

Understand credit, debt, insurance and the risks attached to different financial products

Key learning points

• Splitting the price
• Where a monthly payment comes from
• The term changes everything
• The risk written into it

This lesson at a glance

30 minutes
18 parts to scroll through
4 quick checks
Marked quiz at the end
Gentle pace: short sittings with pauses

Words to know

creditinsuranceattachedfinancialproducts

Scroll down — the lesson carries on below

Part 1 of 18 · Discover6%

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Part 1 of 18

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How a mortgage actually works

An English teaching video on this topic from Finder - UK. Watch it, then scroll down for the lesson.

In a nutshell

Understand credit, debt, insurance and the risks attached to different financial products

What you already know

Part 2 of 18

Before we start

What you already know

You can find a percentage of an amount and know that interest is the cost of borrowing.

Recap: Credit, APR and the real cost of borrowing

Key words

Part 3 of 18

Key words

Words you'll need today

Mortgage: A long-term loan to buy property, secured against that property.
Deposit: The share of the price you pay yourself, often 5–20%.
Loan to value (LTV): The loan as a percentage of the property's price.
Term: How many years the mortgage runs, commonly 25 to 35.
Fixed rate: An interest rate locked for a set period, often two or five years.
Repossession: The lender taking the property back if repayments are not made.

Learning cycle

Part 4 of 18

Learning cycle 1 of 2

Deposit, loan and rate

A short piece of teaching, then a check to make sure it has landed.

Explore the idea

Part 5 of 18

Learn

Splitting the price

A house costs £200,000. Sam has saved £20,000. That deposit is 10% of the price, so he borrows £180,000 — a loan to value of 90%. LTV matters because it sets the interest rate: lenders charge less when the buyer has more of their own money at stake. At 90% LTV Sam is offered 4.8%; a buyer with a 25% deposit is offered 4.2% on the same house.

Explore the idea

Part 6 of 18

Learn

Where a monthly payment comes from

A repayment mortgage payment has two parts: interest on what you still owe, and a slice of the debt itself. In month one Sam owes £180,000, so interest at 4.8% a year is 180,000 × 0.048 ÷ 12 = £720. His payment is £1,032, so £312 clears actual debt. Early on, most of the money is interest; near the end, most of it is debt. That is why overpaying early saves so much.

Quick check

Part 7 of 18

Quick check

A £250,000 house with a £25,000 deposit gives a loan to value of:

Reset break

Part 8 of 18

Pause

That's sitting 1 of 2 done

Stretch, get a drink, look out of the window. There is no timer and nothing is counting down — your place is saved, so you can come back in five minutes or tomorrow.

Stop here for now

Quick check

Part 9 of 18

Quick check

First-month interest on £180,000 at 4.8% a year is about:

Learning cycle

Part 10 of 18

Learning cycle 2 of 2

Term, risk and the real total

A short piece of teaching, then a check to make sure it has landed.

Explore the idea

Part 11 of 18

Learn

The term changes everything

Stretching the term lowers the monthly payment and raises the total. £180,000 at 4.8% costs roughly £1,032 a month over 25 years — about £309,600 paid in total — or about £930 a month over 35 years, around £390,600 in total. The longer mortgage is £102 a month easier and roughly £81,000 dearer. Neither is 'the right answer'; it is a trade between this month and the next three decades.

Explore the idea

Part 12 of 18

Learn

The risk written into it

A mortgage is secured, which means the lender can repossess and sell the house if repayments stop. Fixed rates protect you only until they end: someone leaving a 2% fix for a 5% rate on £180,000 sees interest jump from £300 to £750 a month. Lenders stress-test for this, and sensible buyers budget for the rate they might pay, not the rate they have today.

Quick check

Part 13 of 18

Quick check

Choosing a 35-year term instead of 25 years usually means:

Quick check

Part 14 of 18

Quick check

Why do lenders offer better rates at lower LTV?

Common mix-ups

Part 15 of 18

Common mix-ups

Things people often get wrong

Thinking the deposit is a fee — it is part of the purchase price and reduces the loan.
Believing a longer mortgage is cheaper; the monthly payment is lower but the total is much higher.
Assuming a fixed rate is fixed for the whole term; it is usually two to five years.

Challenge round

Part 16 of 18

Game · Sort it

Which of these are true?

Drag each card into the right column. Tap a card first if dragging is fiddly.

True

Not true

Mastery quiz

Part 17 of 18

Marked quiz

End of lesson quiz: How a mortgage actually works

3 questions, marked with the reasoning shown. No timer.

1. 'Secured on the property' means:
2. A £160,000 mortgage moving from a 2% fix to 5% adds roughly how much monthly interest?
3. Overpaying in the early years saves a lot because:

Lesson round-up

Part 18 of 18

Lesson round-up

Ready when you are

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Do the work

Your written work for this lesson

This is the part you'd do in your book at school. Pick the pieces below, write here or on paper, and photograph anything you draw or work out.

Case study

Should the town centre have a curfew for under-16s?

After a rise in reported vandalism, Harbrook council proposed that under-16s should not be in the town centre after 9 pm without an adult. Police recorded 62 incidents last year, most between 9 pm and midnight. Shopkeepers signed a petition supporting the plan.

A youth council objected. They pointed out that most young people in town at night were going home from sports clubs or work, that the plan punishes a whole group for the acts of a few, and that the library and the bus interchange are in the town centre. They asked instead for a late bus and a youth space.

The council voted to trial the curfew for six months and to publish the crime figures at the end.

Written for Good Learning Co.

Reading questions

Give the strongest point on each side of the argument, using a fact from the case.
Whose rights and whose responsibilities are involved here? Explain both.
Write your own view on the curfew with reasons and one example.

Reading and response
Reading
Read the case in the lesson again and write what you think should happen, and why it is fair. Use one fact from the case as evidence.
2 paragraphs (PEE)
Extended writing
Writing
Write your answer to the lesson's big question in full: the strongest point on each side, then your own view with reasons and an example.
250–350 words
Reading log
Reading
Find one news story this week that links to this lesson. Note the headline, where you read it, and how it connects.
1 story, 4–5 sentences
Two sides of the argument
Writing
Write the strongest point for, the strongest point against, and then your own view with a reason.
3 paragraphs
Poster or leaflet plan
Diagram
Plan a leaflet that explains this right or responsibility to someone your age, then photograph it.
1 planned page

Write your answer, notes or working here

Saved as you type.

Photos of paper work, diagrams or working outHow many minutes did the written work take?

Part 1 of 18 · Watch & discover

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