There are various types of mortgage available and our fully qualified advisers will be able to discuss these in detail with you. Listed below is a brief explanation of the various mortgage options available:
A tracker mortgage is a type of variable rate mortgage. The interest rate tracks the Bank of England base rate at a set margin (for example, 1%) above or below it.
Tracker mortgage deals can last for as little as one year, or as long as the total life of the loan. As a variable deal a tracker mortgage will not provide total rate security. If the base rate suddenly rises, so will the interest rate you pay. This means that a tracker mortgage may not be suitable for someone on a tight budget, who needs to know exactly how much their monthly mortgage repayments will be.
Fixed Rate Mortgage
With fixed rate mortgages, the borrower can lock into a fixed repayment cost each month over an agreed period of time and know that, irrespective of changing rates of interest, monthly payments will not be affected. The longer the fixed rate period, the higher will be the fixed interest rate. Fixed periods of one to five years are the most popular and most readily available. At the end of the fixed rate term, the interest rate usually reverts to the lender's prevailing variable mortgage rate
Discount Rate Mortgage
In today's competitive environment, many providers offer an initial discounted rate. This takes the form of a limited period reduction in the normal variable interest rate. At the end of the discount period, the rate reverts to the lender's prevailing variable mortgage rate.
Some lenders even provide a cash discount to first time buyers on completion of the loan - also known as a "cashback".
Variable Rate Mortgage
As the name suggests, the monthly repayment goes up and down in line with the lender's mortgage rate. This means that the borrower cannot predict the monthly cost of the mortgage from one year to the next. This can cause major budgeting problems if interest rates are rising. On the other hand, when interest rates fall, there is less to pay. Many lenders do not alter the rate for existing borrowers until the year-end.
Capped & Collared Mortgage
A capped and collared mortgage is a variable rate mortgage which has a fixed upper rate limit (the cap) and a fixed lower rate limit (the collar). This means that the borrower knows in advance the highest and lowest monthly payments that he may have to make. For example, if cap and collar rates are fixed at 6.5% and 3.5% respectively, the loan will be charged at the prevailing variable rate as long as this is not more than 6.5% or less than 3.5%.
A truly flexible mortgage allows you to make over-payments and underpayments, borrow back over-payments and, if you have built up enough credit, to take payment holidays. Another important feature is that interest is calculated monthly/daily, not annually in arrears, so over-payments have an immediate impact on what interest you pay. You can, therefore, significantly reduce the term of the loan and save thousands of pounds in interest payments if you are able to make additional payments during the term of the mortgage.
A flexible mortgage can be ideal for people with an inconsistent income, like the self-employed especially if the mortgage offers a mortgage interest offset facility or current account facility.
Buy to Let Mortgages
For information on our Buy to Let mortgages, click here.
There are two main methods of repaying a mortgage loan, and it is also possible to set up the loan on a 'part repayment and part interest only' basis. A description of these methods is provided below.
Repayment (Capital and Interest) Mortgages:
Under a repayment mortgage your monthly repayments consist of both interest and capital so, over time, the amount of money you actually owe will decrease. In the early years your repayments will be mainly interest and therefore the capital outstanding will reduce slowly in the beginning.Whilst this method ensures that the loan is repaid at the end of the term providing all payments are made on time and in full, it is generally more expensive at the start.
Interest Only Mortgages
With an interest only mortgage you only repay the interest on the loan. At the end of the term the capital is still outstanding. Therefore you will usually need to take out some kind of investment policy to save up enough to repay the loan at the end of the term.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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