Understanding Types of Morgages

How do mortgages work?

All mortgages work in the same basic way: you borrow money from a lender to buy a property, pay interest and capital on the loan over a agreed period of time normally between 25 and 40 years depending on your age at purchase and age for retirement. The whole idea is to pay back the full loan. However different lenders will give you different terms and charges. what you need to do is find the one that best suits you. below is information which you will find helpful: 

Some different types of mortgage are?

  • first time buyer mortgages
  • buy to let mortgages
  • repayment mortgages
  • interest-only mortgages
  • fixed rate mortgages
  • variable rate mortgages
  • tracker mortgages
  • discounted and capped rate mortgages
  • cashback mortgages
  • offset mortgages
  • flexible mortgages
  • guarantor mortgages

 

First time buyer mortgages

If you do not own a proprty you may qualify as a First time buyer and can benefit from lower deposit, interest rates and stamp duty charges. You may also be eligible for more support from the government schemes with Help to buy.  

Buy to let mortgages

Buy to let mortgages are for people who want to buy a investment property and rent it for profit returns. Lenders will set their own criteria for you to qualify for example may be full time employment with a certain salary range. and often the amount you can borrow is linked on the amount of rent you expect to receive.

 

Repayment mortgages

This is the most popular and most widely available mortgage repayment option.

With a repayment mortgage you’ll make monthly repayments for an agreed period of time (known as the term) until you’ve paid back both the capital and the interest.

This means that your mortgage balance will get smaller every month and, as long as you keep up the repayments, your mortgage will be repaid at the end of the term (usually 25 to 40 years).

Be aware that when you start your mortgage, the repayments will mainly be interest, so if you want to repay the mortgage or move house in the early years, you’ll find that the amount you owe won’t have gone down by much.

You must also then decide the type of repayment mortgage you want, whether it’s to have the interest rate fixed over time, or variable, which means the interest rate can go up or down.

Interest only mortgages

With interest-only mortgages you only pay the interest due on the amount you borrowed each month.

So while your monthly payments will be less than with an equivalent sized repayment mortgage, you’ll still owe the amount you originally borrowed when you reach the end of the mortgage term.

Just like repayment mortgages, you can fix the interest over time or it can be paid back at a variable rate.

Fixed rate mortgages

Fixed rate mortgages allow you to set the rate of your interest at a predetermined amount for an agreed upon length of time. This means that the amount you pay per month will remain unaffected by changes to the Bank of England's base rate of interest. It also means that your lender cannot change the rate you pay until the agreed upon period of time is over.

People normally choose fixed rate mortgages because they want to be secure in the knowledge of how much they will need to pay each month. The fact that you know that the interest rate will not change means that you can plan ahead and budget adequately. These fixed rate mortgages remove the chance of you getting caught out by a rise in interest rates and becoming unable to meet your payments if the price goes up.

Variable rate mortgages

Standard variable rate mortgages have an interest rate that needs to be paid each month, but can vary from one month to the next. Usually, the interest rate changes proportional to another rate; the Bank of England's base rate is very influential on variable interest rates, as is the base rate of each lender.

The standard variable rate usually comes with the most options for borrowers, such as being able to pay off more of the mortgage earlier on, or leaving the mortgage deal with little or no get out fees, which makes remortgaging cheaper.

The main benefit is that the Variable rate mortgages have the benefit of having an interest rate that can change. Generally, the rate changes proportionally to the lender's base rate as time goes on.

Tracker mortgages

Tracker mortgages move in line with a nominated interest rate which is usually the Bank of England base rate. The actual  payment you pay will be a set interest rate above or below the base rate. So if the base rate goes up, your payments will increase and if the rate goes down your payments will be lower.  

For example if the base rate at 1% and an add-on rate of 3%, your mortgage rate will be 4%. 

 

Discount and capped rate mortgages

The lenders may offer a discount or a reduction on the standard variable rate (SVR). as they are linked to the SVR, the rate will go up and down when the SVR changes. The capped rate a variable rate mortgages but one with a celing cap which means you will know your maximum payments amount, however can still benefit from lower rates. These are usually fixed for a period of time ranging from 2, 3 and 5 years. 

Cashback mortgages

When you purchase a home, you may find that you need some extra cash. You might want to renovate, purchase furniture, or simply have a cash buffer during the first few months of homeownership. Fortunately, some Canadian lenders offer mortgages that give you a cash back rebate when you take out your mortgage. 

With a cash back mortgage, your lender advances you a cash lump sum when your mortgage closes. The most common sum you receive is 5% of your mortgage amount but it’s possible to get between 1% and 7% depending on the lender you choose.

Offset mortgages

An offset mortgage works by balancing your savings and, in some cases, the cash normally kept in your current account against the amount you owe on your mortgage, to reduce the monthly interest bill.

While you don’t earn any interest on the cash you offset, you aren’t charged any on the equivalent amount of debt.

If you have a reasonable amount to offset this can lead to substantial savings.

Flexible mortgages

Borrowing is often split between various sources and interest rates e.g. mortgage, personal loans, credit cards and current account. Flexible mortgages allow you to hold all your borrowing in one place and make overpayments and underpayments as appropriate without incurring penalty costs.

Overpayments and Underpayments

This means you can control when and how much you repay. Conversely, if you are short of money you can repay less than you normally would or even skip a payment depending on the terms of the mortgage. However, you need to maintain strong discipline to ensure that the mortgage will eventually be repaid.

Flexible Mortgage Conditions

You need to check the conditions as not all flexible mortgages operate in the same way. Some may restrict how much you can overpay by setting upper or lower limits and some may not allow totally missed payments.

Guarantor mortgages

With a guarantor mortgage, a parent or close family member guarantees the mortgage debt. This means that if the buyer misses their mortgage repayments, the guarantor will have to cover them.Traditionally with these types of mortgage, parents were responsible for repaying the whole loan if their child defaulted on their mortgage payments.There are, however, increasing numbers of mortgages on the market that place limits on the amount the guarantor is responsible for.

We fully understand that for some of us this may be the biggest financial commitment we make. We also believe that it can be a complicated process at times. But here at At Locations our friendly mortgage advisers will support you make the correct decision that will suit you and speak in a language that you understand. Remember we run no obligation and no charge for our service. It's frendly and free.
 

Still Confused?

Dont worry call our Mortgage Advisor for Free and Friendly Advise 

We are located at:               At Location Real Estates, 75 Longbridge Road, Barking, Essex, IG11 8TG

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Email: Info@atlocation.co.uk

 

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