Whether you are buying a new home or remortgaging your existing property, you are likely to need a mortgage. A mortgage is simply money lent to you for a fixed period to buy your home. The lender secures the loan by a charge over your property. If you don’t repay the mortgage as it falls due, the lender can sell your property to recover its losses. There are several different types of mortgages and which you choose will depend on your circumstances and your attitude to risk. Mortgage repayments are one of our biggest monthly outgoings and it is for this reason that many homeowners opt for a mortgage which gives them some degree of certainty over their repayments.
The amount of your monthly repayments depends on how much you borrow, the length of your mortgage term and the interest rate.
A fixed-rate mortgage is one of the easiest types of mortgages to understand. The mortgage interest rate is fixed for a set period and as a result, you will always know exactly what your repayments will be during the fixed term. At the end of the fixed term, the mortgage returns to the lender’s ‘standard variable rate’ (SVR), which can be higher than the fixed rate you have been paying. This is where you might want to consider looking to apply a new mortgage.
Tracker mortgages track the Bank of England base rate, fixing the interest rate you pay at a percentage over the base rate. Most tracker mortgages are for a relatively short time and when the fixed or introductory rate ends, your interest rate returns to the lender’s standard variable rate. It is also possible to have a tracker mortgage for the lifetime of your mortgage term.
Discounted rate mortgages
If you take out a discounted rate mortgage, you will pay a set percentage lower than your lender’s standard variable rate. For example, if you have a 2% discount mortgage, you would pay 2% less than your lender’s standard variable rate.
Some lenders offer offset mortgages if you deposit your savings with them as well as taking out a mortgage. The lender calculates your repayments by offsetting your savings against the amount outstanding on the mortgage and only charges you interest on the difference. No interest is paid on the savings but an offset mortgage can mean that you will make lower monthly repayments and pay off your mortgage faster, making it an attractive option for some homeowners.
Standard variable rate (SVR) mortgages
Each lender has their own standard variable rate. The lenders set this rate themselves and determine when they will change it. Your mortgage can either be on the SVR from the start, or it can revert to the SVR at the end of a fixed or discounted period. Repayments on a standard variable rate mortgage increase if the lender decides to increase the rate.
Repayment or interest only?
Most new mortgages are repayment mortgages. Your mortgage payment each month includes both interest and a partial repayment of the sum you have borrowed so that by the end of the term you have paid off the whole of the sum you have borrowed. With an interest only mortgage, the repayments only include interest. At the end of the mortgage term, you still need to repay the initial sum borrowed.
At OneDome, we have a team of talented mortgage advisors with years of experience helping people make the right mortgage decisions. We also provide our Mortgage Passport, which is an online tool used to not only qualify you for a Mortgage in Principle, but also to get a mortgage from 90+ lenders across the country. Additionally, you can easily browse over 12,000 mortgage products.
If you have any questions about the mortgage process or the types of mortgages best suited for your needs, our advisors will be more than happy to help. Get in touch with them on 020 3868 6262 today. Or for a more detailed look at the different types of mortgages, we’ve created a comprehensive guide here.
Your home may be repossessed if you do not keep up repayments on your mortgage.