Types of Mortgage
There are a huge variety of products to choose from
The UK mortgage market features a bewildering array of products all of which meet particular customer needs. We will help you decide on which is the best type of mortgage for your situation.
Our mortgage advisers will be able to talk you through the various features of each type of mortgage and will ask you to consider what features are most important to you. For example; do you want to have fixed monthly repayments? Do you want to make overpayments? By answering these questions it will be possible to select the mortgage product that is most suitable for you.
There are three main types of mortgage products and the features of each are explained below:
Variable Rate Mortgage
The rate on this type of mortgage is variable and can increase or decrease at the discretion of the lender. There are no limits as to how often a variable rate mortgage can increase or decrease.
The interest rate on a discount mortgage is also variable but is discounted by a set amount from the lender's standard variable rate for a period of time. If interest rates increase or decrease during the period of discount the mortgage rate will change but the agreed discount will be maintained. When the discount period comes to an end the mortgage will revert to the lenders Standard Variable Rate (SVR). A discount mortgage gives the benefit of reduced payments in the first few years of your mortgage.
Fixed Rate Mortgage
As suggested by the name, the interest rate on a fixed rate mortgage is set at a specified rate for a set amount of time. At the end of the fixed rate period the mortgage will revert to the lenders Standard Variable Rate (SVR). This type of mortgage is excellent for those who want to know exactly how much disposable income they have left each month, and by giving certainty of monthly payments provides peace of mind and stability.
Methods of Repayment
There are two main methods of repaying your mortgage which are described in more detail below.
Capital & Interest Mortgage (also known as a capital repayment mortgage)
With this type of mortgage you repay part of the capital each month plus interest on the outstanding amount over an agreed number of years so that at the end of the term the mortgage will be repaid in full.
Interest Only Mortgage
An interest-only mortgage is a loan in which, for a set term, you pay only the interest on the mortgage principal balance and the mortgage principal balance remains unchanged. At the end of the mortgage term the mortgage principal balance will need to be repaid and you will need to select a repayment vehicle to achieve this. It is important that payments are maintained into the repayment vehicle so that it achieves its purpose of providing the means for you to repay the principal (sometimes referred to as the capital) balance at the end of the term.
This method of repayment does not provide certainty that the mortgage will be fully repaid at the end of the term and so you must ensure that the method you have selected for the repayment of the mortgage principal balance is suitable for the purpose.
Part Capital & Part Interest Mortgage
This method of repayment is a hybrid of the two main methods allowing you to fine tune your repayments according to your needs. This may be because you already have an existing investment product you would like to use or because your investment product will not provide enough to fully repay your mortgage i.e. shortfall on endowment maturity.
Our mortgage advisers will be happy to discuss the best product and method of repayment for you and can answer any of your queries.
Contact us today on 01392 927327 or fill out our handy Online Enquiry Form to get started.