Types of Mortgages
At Mortgages Direct, we understand that everyone’s circumstances are different. You may want lower mortgage repayments in the early years of your mortgage, or the certainty of a fixed mortgage rate. You might want a greater level of flexibility, or you may not have any idea of what type of mortgage would suit your circumstances.
Our independent mortgage advisors are here to help. We can answer all your questions and recommend the type of mortgage and lenders products to suit your individual needs.
Here is a brief guide to help you understand the different types of mortgages available. Please note, due to current market conditions, some of these mortgage products may not be currently available.
How you pay back your mortgage
A repayment mortgage is also known as a Capital & Interest mortgage – your monthly repayments pay off the interest and some of the capital borrowed each month. This is the only method that ensures your mortgage is totally paid off by the end of the term – so long as you keep up your payments.
Interest Only mortgages
This is where you only repay the interest on your mortgage each month, so you’ll need some sort of investment plan to pay off the capital, e.g. a pension, When your investment matures, you cash in the plan and use it to pay off your mortgage loan. You are responsible for the repayment of the capital when the mortgage reaches the end of the term.
Types of mortgage products
The rate of interest you pay is set at an amount below the lender’s standard variable rate (SVR), and the rate you pay moves up or down in line with any changes to the SVR. This type of loan is cheaper than Standard Variable Rate at the start of your mortgage and allows you to take advantage of any interest rate cuts. But if interest rates rise, your monthly payments go up.
Most people find that buying a home – and especially their first – can leave them a bit financially stretched. Anything that keeps repayment costs down in the first year can be a big help, especially you have the extra expense of re-decorating and furnishing.
The discount you enjoy in the first few years of your mortgage can mean a big saving, however the discount usually means you are tied into your mortgage during the discount term. So, if you change your plans and need to repay your mortgage during the discount term, you will have to pay an Early Repayment Charge. However if you simply need to move house, you can usually take your mortgage with you.
Fixed Rate mortgages
The rate of interest on your mortgage is fixed for a set period of time regardless of whether the European Base Rate or the lender’s Standard Variable Rate changes.
Typically mortgages have rates that change over time – with the effect that repayments can go up as well as down. This can make budgeting difficult, but a fixed rate mortgage can help. Fixed rate mortgages are suitable for those who prefer to know exactly what their monthly outgoings will be and are averse to the risk of rates increasing. An Early Repayment Charge may apply if the mortgage is repaid during the fixed period.
Remember, if interest rates fall, you may miss out on a reduction in your monthly payments.
Tracker mortgages (not available)
Your mortgage interest rate is linked to the ECB rate for a set period. So if the base rate goes up so will the rate of interest you will have to pay on your mortgage, but if the base rate falls so will your monthly repayments.
This type of mortgage is designed to accommodate your changing financial needs. It may allow you to overpay, underpay or even take payment holidays. You may also be able to make penalty free lump sum repayments.
100% Mortgages (not available)
100% mortgages remain available to professionals in certain circumstances (i.e. Doctors, Dentists, Opticians, Optometrists, Physiotherapists, Vets, Solicitors, Barristers, Accountants, Actuaries etc.)
Deferred start mortgages are mortgages where you can postpone repayments for one, two or three months at the start of the mortgage. Often mortgage providers will provide flexibility to first time buyers or those who need some financial comfort at the start or during the life of the mortgage to ease your personal financial burden. There are also a host of other mortgage options which have been developed by lenders in response to the needs of first time buyers.