Different Types of Mortgages
In an ideal world, the process of obtaining your mortgage would be straightforward. But like a lot of things in life, things are never as straightforward as we’d wish them to be.
Whether you’re a first-time buyer or an experienced home-buyer, you may be aware that there are lots of different types of mortgages to choose from. It can be overwhelming and can feel like you’re trying to find a needle in a haystack at times, especially when you’re trying to do the job on your own.
But as an independent mortgage broker, we are here to help you. Our experts have access to over 40 lenders offering hundreds of different mortgage products, and the best part is that we’ll do all the legwork for you and sieve through the different types of mortgages to identify the most suitable one for you and your needs.
All you need to do is get in touch or give us a call and we will get the ball rolling so you can get the keys to your dream home, sooner rather than later.
How Do Mortgages Work
When you’re looking for a mortgage, you will want to pick one with the best mortgage rate, but that doesn’t necessarily mean going for the cheapest as there are lots of other factors that can affect your choice.
All mortgages work in the same type of way; you borrow money to buy a property, pay interest on the loan and eventually pay back what you borrowed. Mortgages start to get complicated when you have to consider the following: different interest rates, different ways to repay, borrowing for different periods of time, different types of mortgages for special situations and various charges to pay.
What Are The Different Types of Mortgages?
Here we’ve listed the different types of mortgages that you can get. As you can imagine, the list is quite long.
Different types of mortgages include:
We also help provide professional mortgages, too.
This is a basic way of repaying all mortgages, however specialised they are, apart from interest only loans that are different. Repayment mortgages are ideal for buyers that want to be certain that their house will be paid for at the end of the mortgage.
With repayment mortgages, each month you repay some of the interest you owe plus some of the capital you’ve borrowed. At the end of the period (often 25 years), you’ll have paid back everything you owe and you will own your home outright.
There’s also a chance that you’re going to want to move within a 25 year time period. In this scenario, you might be able to take the mortgage with you (called ‘porting’ your mortgage), or you can repay the original loan and take out a new one.
Alternatively, it could be that by the time you move, your house could have gone up in value and you will have repaid some of the capital. So, next time you can put down a bigger deposit and potentially find a new mortgage at a better rate.
Interest-only types of mortgages are pretty self-explanatory, you pay just the interest month by month and repay the capital at the end of the period with money you’ve saved elsewhere. Interest-only mortgages are ideal for buyers that want the lowest monthly repayments and are confident that they will have enough money to repay the debt at the end of the mortgage.
This type of mortgage is significantly different to a repayment mortgage because at the end of the loan, you will have to find enough money to repay the whole debt.
But, you can save up any way you want or use money from an inheritance, however, you must be confident of having the money to hand when the time comes to repay. Failing to do so means you might have to sell the house to pay off the mortgage.
Fixed Rate Mortgages
Fixed rate mortgages are popular, particularly with first-time buyers, as our mortgage rate is fixed for a set number of years – usually two, three or five years, but sometimes 10 years.
With a fixed rate mortgage, you’ll know exactly how much you will be paying each month for that length of time, regardless of what happens to interest rates on other mortgages. However, the downside to this type of mortgage is that if mortgage rates decrease, you will be stuck at a higher rate.
You do have the option to get out of a fixed rate mortgage, but there will be an early repayment charge because you switched before the end of the mortgage term.
When the mortgage comes to an end, you’ll be put on the lender’s standard variable rate (SVR) which will probably have a higher interest rate than you’ve been paying. In that case, you can apply for another fixed rate deal.
This type of mortgage is good for individuals who are budgeting carefully and want to know exactly how much they will be paying over the next few years. The interest rate is partly influenced by the Bank of England base rate, but other factors will come into play as well.
Variable Rate Mortgages
With varying rate mortgages, the interest rate increases and decreases, as mortgage rates generally change. The interest rate you pay on an SVR mortgage can change even without the base rate moving and similarly, the base rate might come down, but your mortgage rate stays the same.
Variable rate mortgages are good for buyers who think mortgage rates are decreasing, but better deals are probably available elsewhere.
Tracker mortgages move in line or ‘track’ a nominated interest rate which is usually the Bank of England base rate. But, the actual mortgage rate you pay will be a set interest rate above or below the base rate. So, when the base rate goes up, your mortgage rate will go up by the same amount and vice versa.
Some lenders set a minimum that the interest rate can drop to, however, there’s no limit to how high it can go. Tracker mortgages are good for buyers who can afford to pay more if the rates increase, but believe that rates will go down.
Give Us A Call
So now you know a bit more about some of the different types of mortgages available out there, you might have a bit more of an idea about the one that is best suited to you. However, if you’re not 100%, give us a call and we’ll find the best mortgage for your needs.
A mortgage is probably one of the biggest outgoings you will have, so it’s best not choose one in haste.
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