By admin 2020-11-10 10:35:55

Different types of Mortgages


Purchasing a house is an important milestone in your life and it involves getting a mortgage. There are lots of different types of mortgages a first time home buyer can choose from to find the one best suited for them.


There are two main types of mortgages:
  • Fixed-rate: The interest you’re charged stays the same for a number of years, typically between two to five years.
  • Variable-rate: The interest you pay changes due to the macroeconomic changes.

Fixed Rate Mortgages


You pay the same interest rate throughout the length of your mortgage contract. However, the interest rates may change due to macro-economic changes. You’ll see these rates advertised as ‘two-year fix’ or ‘five-year fix’, along with the interest rate charged for that period.

However, charges will be incurred should you want to leave earlier than the length of the fixed mortgage term. A better scenario is when you are looking for a new mortgage deal two to three months before the current mortgage agreement ends. Your lender or if you switch lenders, you could be moved automatically onto your lender’s standard variable rate, which is usually higher.

Advantage

  • Your monthly payments stay the same, making it easier for you to budget.

Disadvantage

  • If interest rates fall, your rates will not be influenced therefore won’t benefit.
  • Fixed-rate deals are usually slightly higher than variable-rate mortgages.

Standard Variable Rates (SRV)


This is the regular interest rate your mortgage lender charges homebuyers, and it will last as long as your mortgage or until you take out another mortgage deal.

Changes in the interest rate might occur after a rise or fall in the base rate set by the Bank of England.

Advantage

  • You’re free to overpay or leave anytime

Disadvantage

  • Fixed-rate deals are usually slightly higher than variable-rate mortgages.

Discount Charges


This is a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years. SVRs differ across lenders and so it is best not to assume that the bigger the discount, the lower the interest rate. A reminder that charges if you want to leave before the end of the discount period.

Advantage

  • The cost rate will remain cheaper when they start. This should keep your monthly repayments lower.
  • If the lender cuts its SVR, you’ll pay less each month.

Disadvantage

  • The lender can raise the SRV any time, so it will be hard to budget.
  • If Bank of England base rates rise, you’ll probably see the discount rate increase too.

Capped Rate Mortgages


Your rate moves in line normally with the lender’s SVR. But the cap means the rate can’t rise above a certain level.

Advantage

  • Your rates will fall cheaper if the SRV comes down.
  • Your rate won’t rise above a certain level. But make sure you could afford repayments if it rises to the story of the cap.

Disadvantage

  • The cap tends to be set relatively high.
  • The rate is generally higher than other variable and fixed rate.s
  • Your lender can change the status at any time up to the level of the cap.

Tracker Mortgage

According to Money Advice Services, tracker mortgages move directly in line with another interest rate – usually the Bank of England’s base rate plus a few per cent.So if the base rate goes up by 0.5%, your rate will go up by the same amount.Tracker mortgages usually have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal.Remember to check the small print.

Advantage

  • If the rate it is tracking falls, so will your mortgage payments.

Disadvantage

  • You might have to pay an early repayment charge if you want to switch before the deal ends.
  • If the rate it is tracking increases, so will your mortgage payments.

Offset Mortgage

These work by linking your savings and current account to your mortgage so that you only pay interest on the difference. You still repay your mortgage every month as usual, but your savings act as an overpayment which helps to clear your mortgage early.

Before picking a mortgage, the homeowner must understand what this means and which one is best for them, seeking out an expert's financial advice is necessary.

For those who buy a property hoping to rent it out rather than living in it, they may opt for a buy-to-let mortgage. Buy-to-let mortgages are usually only offered on an interest-only basis, which means the payments made will only cover the interest of the loan.

This is different from most residential mortgages, as these will cover both the capital, or amount borrowed, and the interest will gradually be paying back the price of the property. To get a quote, choose the type of mortgage you require and our financial advisors will be in contact shortly.

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