Types of Mortgage
There is huge amount of choice when it comes to choosing a mortgage. You need to decide what mortgage will be the most cost effective for you in terms of interest rate and fees.
We have set out below explanations of the various types to hopefully give you a better understanding of what’s available so you can make an informed choice of what might suit you best.
The interest rate always remains the same throughout the period of the fixed rate term you choose – usually between 1 – 5 years, although there are some 10 year fixed rates available.
If you choose a fixed rate mortgage, you do have the security of knowing exactly how much your mortgage repayments are for a set period of time. [/tab_item] [tab_item title=”Tracker Mortgages »”]Interest rates on tacker mortgages are linked to the Bank of England base rate. So if that rate changes, your mortgage rate will change as well.
The base rate at the time of writing is currently 0.50%, so if you took out tracker mortgage with a rate that is 3% over the base rate you would be paying an interest rate of 3.50% . If the Bank of England put the base rate up to 1%, your mortgage rate would increase to 4.50%.
As with fixed rate mortgages, tracker mortgages are available over different terms which are normally 2 or 5years. With these mortgages, you will be be charged a penalty if you want to get out of the mortgage during the term.
Lifetime or Term trackers are also available which are often free forom penalties so they are very flexible.[/tab_item] [tab_item title=”Discount Mortgages »”]Discount rate mortgages offer a discount off a certain interest rate – most commonly a lender’s Standard Variable Rate (SVR).
The discount can be for an introductory term of 2, 3 or 5 years, or it could even be for the entire term of the mortgage (a lifetime discounted rate).
Offset mortgages are a little more complicated as they link your savings to your mortgage.Instead of receiving interest on your savings, the money is set against your mortgage so that you pay less interest on that debt. You can in effect pay more off your mortgage quicker. You can still have the choice of fixed or variable rate mortgages.
This is the only sure-fire method of repaying your mortgage within the term.
Every month you pay back some of the amount that you borrowed as well as interest. By the time the mortgage term finishes, you’ve repaid your mortgage in full.
An Interest Only Mortgage does not guarantee to pay your mortgage.
Your monthly mortgage payments covers only the interest of your mortgage and because you only ever pay the interest on what you borrowed, and never actually pay it back. You will still owe the amount you borrowed at the end of the term.
At the end of the term you have to repay the mortgage using an investment, selling your home, or by remortgaging.
You have a good few options when searching for the right mortgage. You can research the market yourself or use the services of a specialist Mortgage Broker or Independent Financial Adviser.
Whichever method you choose, make sure you examine the market thoroughly, you are likely to have a mortgage for a long time, so it is important that you choose the product that best suits your circumstances.