Mortgage guide: what it is and how it works

A mortgage guide takes the parts of a home loan and puts them in order. Rather than leaving a reader to piece the words and the steps together, it sets them out in one place: what a loan is made of, how a repayment is built, and the choices that sit around it. Guides are usually written for someone new to borrowing, or for someone returning to the question after a few years away.

Guides differ by who writes them. One from a lender tends to describe the loans that lender offers. One from a broker tends to describe the range a broker can arrange. One from a consumer body tends to take the borrower's side and point out where the costs and the conditions sit. Knowing who wrote it tells a reader a good deal about the angle.

A guide usually moves in the order a borrower moves. It starts with the deposit and the borrowing amount, then the choice between the main kinds of loan, then the application, then the years of repayment. Later parts often deal with what happens when circumstances change: a move, an extra payment, a wish to repay faster.

Some guides stop at the point of approval and leave the running of the loan alone. Others follow through to refinancing and to what a borrower can do when a fixed period ends. The second kind runs longer and covers ground the first leaves out.

Much of a guide is a glossary in disguise. Principal and interest, term and deposit, fixed and variable, offset and redraw: these are the words that turn up in a loan contract and in a conversation with a lender, and a guide sets out to make them plain.

Guides also explain the small distinctions that carry weight. A fixed rate and a variable rate behave differently when rates move. An offset account and a redraw facility do different things with extra money. Interest only and principal and interest are two ways of arranging the same debt. Setting them side by side is often the point of the exercise.

Readers tend to arrive with a question of their own: how much can be borrowed, what a repayment looks like, the choice between a fixed rate and a variable rate, or how long a loan might run. A guide is a starting point for those questions rather than an answer to them, because the answers depend on a household's own numbers.

It also helps to know what a guide cannot do. It cannot say what a particular lender will decide, and it cannot stand in for the figures that come with a real application. What it can do is put the vocabulary and the sequence in place, so that the conversation afterwards is easier to follow.