The vast majority of us will need a mortgage in order to purchase a property. However understanding mortgages and the different mortgage types can be overwhelmingly confusing.
In this article we list and provide a simple explanation of the most popular mortgage types.
We highly recommend that you speak to an experienced mortgage broker before you start house hunting, these specialist advisors will be able to advise you on the right mortgage for you.
Fixed rate mortgages
Fixed rate mortgages are the most popular mortgage type, particularly amongst first time buyers, this is because a fixed rate mortgage allows for repayments to be set or fixed for an agreed number of years, usually 2, 3 or 5 though sometimes 10 years.
The beauty of this type of mortgage is that there are no hidden surprises, borrowers know exactly how much they must pay each month regardless of interest rate increases and other economic issues.
The downside is that if interest rates fall, the borrower will be stuck with the agreed fixed rate. Getting out of a fixed rate mortgage prior to the official expiry date will usually incur an early repayment charge.
When the mortgage comes to an end, you’ll be put on the lender’s standard variable rate (SVR) which will probably have a higher interest rate than you’ve been paying. In that case you should speak to a financial adviser who can help you find a more competitive rate through a remortgage.
Interest only mortgages
Interest only mortgages are popular with property investors, particularly buy to let investors or those who plan to sell the property on at a higher rate.
The advantage of an interest only mortgage is that borrowers are required to only pay back the interest on the loan, this means that monthly payments are lower than other mortgage types. However it is important to understand that the borrower will need to pay back the full loan amount at the end of the mortgage term, this can be achieved via a remortgage, selling the property or finding the cash via other means.
Variable rate mortgages
Variable rate mortgages also known as Standard Variable Rate (SVR) Mortgages is a lenders basic mortgage. The rate of the mortgage goes up and down as generally mortgage rates change.
The mortgage rate is partly influenced by the Bank of England base rate however this is not always the case and so the mortgage rate might change even without base rate increases.
If your mortgage is on a standard variable rate you should speak to an experienced mortgage broker who is likely to be able to find you a more competitive mortgage rate.
Tracker mortgages have been popular with risk takers and those who strongly believe interest rates will go down. A tracker mortgage does just that, it tracks the Bank of England base rate, however the actual rate borrowers pay is set by their lender, this rate is usually slightly higher than the BOE base rate.
When base rates go down, so will the monthly mortgage payments but base rates also move upwards and there is usually no limit to how high a tracker mortgage rate will go!
Buy to let mortgages
Buy to let mortgage product are for property investors who want to purchase a property to let to a tenant.
This is a specialist mortgage type and the amount one can borrow is largely dependant on the rental income achievable.
Our mortgage brokers have decades of experienced finding suitable mortgages for first time buyers, families and property investors. Get in touch with a member of our team today to find out how we can help you secure a mortgage that best suits you.