A mortgage - the loan you take out from a lender to pay for a property - is probable one of the largest debts you will have in one go.
If you are looking for a mortgage in today’s market place, you may well be completely bewildered by the wealth of options out there (there are around four thousand mortgage packages available at the moment!) but don't panic. This can only be a good thing in view of getting a competitive deal, and despite all the jargon, most mortgages are simply a variation on a few types. So, to get yourself started, simply fill out our form below to get connected to a specialist mortgage broker.
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There are TWO main varieties of mortgage: Interest only and Repayment (or capital). Your mortgage is divided into two parts, the money you originally borrowed for the property (capital) and the interest the lender charges on the loan.
Different Types Of Mortgage
Rather like a full house in poker there seems to be a wide selection of mortgages on the market, but aren’t many of them the same kind of product?
Interest only mortgages
An interest only mortgage is one where none of the capital is actually being repaid directly, only the interest on the loan is. The idea is that, as you make your mortgage repayments towards the interest, you should be paying simultaneously into an investment fund. At the end of your mortgage term, this fund should hopefully have grown enough to pay back the capital and even leave you with extra cash. If you take this type of mortgage, your lender will normally offer an investment product into which you can make your payments, but you are under NO obligation to accept it- you can shop around for the best deal- using an ISA has a tax advantage over others.
Endowment mortgages were a popular type of interest only mortgage but have since fallen badly from grace. Whichever type of interest only mortgage you choose, make sure you consult an IFA for the investment part.
Repayment Mortgages
This is the only way in which a property is actually guaranteed to be yours at the end of your mortgage because you pay a little towards the capital with every payment (what doesn't go towards the capital goes towards interest) until the whole debt is paid.You will pay a bit more every month towards this type of mortgage, but you will be eating into the actual debt, not just interest, and you will not need a separate investment scheme to pay off the property.
There are also 'part repayment, part interest only' mortgages, which are a combination of the two.
Interest repayment
For both types of mortgage, there are various ways of paying the interest. They all work off the base rate of interest that is set by the Bank of England. These are:
Fixed rate - you and your lender agree to fix the interest rate for your loan for a set period- commonly between 1 and 5 years. You will then know exactly what you owe each month. If the interest rates drop of course, you’ll be paying more than with a variable rate and there’s usually a hefty early redemption penalty should you choose to leave before the agreed term is up.
Fixed Rate Mortgages
What are the benefits of a fixed rate mortgage? Which lenders are offering which products and how do they compare?
Variable rate - or standard variable rate is when your interest is set at a rate higher than the Bank of England set base rate (Commonly between 1% and 2% but can be higher) and therefore 'tracks' the base rate and fluctuates along with it. You will take advantage of low interest rates but of course will be at the mercy of interest rate rises. Different lenders offer different rates- so bear in mind that the difference of 1% on a £100,000 mortgage can mean the difference of £1000 a year!
Variable Mortgages
Variable mortgages are for those whose incomes are not particularly stretched. What are the ups and downs of entering into a standard variable mortgage?
Why Does The Interest Rate Of Your Mortgage Change?
The biggest difference between a mortgage and other types of loan is the fact that the interest rate changes throughout the term of the loan. Why is this? And which type of interest-rate arrangement is best?
Capped rate - this is a 'best of both worlds' option between the above two. You and your lender agree to cap, or limit, the maximum amount of interest you will pay over the agreed term but if interest rates fall, your rate falls with it. So technically, you take advantage of the falls and are protected to an extent from the rises in base rate. These mortgages are not thought to be as competitive at the moment though as, say, a discount mortgage as the interest rate is usually set a bit higher. However, some lenders are offering very good deals that may be even cheaper than a fixed rate mortgage. So it pays to shop around.
Discount rate - The lender, usually to tempt new borrowers, offers a discount rate- a discount on the normal variable rate. Your payments will fluctuate with the base rate as in a variable rate, but you'll be paying less. Once the discount rate ends, you'll go onto the lenders' standard variable rate. So it's worth checking if they're normally expensive, or simply look for the next best discount rate at the end of your term from another lender! You're locked in for the agreed term, so try and get as short a term as possible- the best is no more than two years.
Recent UK Mortgage News
Are you planning to jump off the property ladder? [02.04.08]
Over recent years there have been many reports about first time buyers that are trying hard to get onto the property ladder, but have had very little success due to high property prices and rising interest rates, as well as the more recent problem of restricted access to mortgages.
Is it becoming more difficult to get 100% mortgages? [10.03.08]
For first time buyers 100% mortgages have provided a valuable means to getting on to the property ladder for many years. First time buyers so not have an existing property, and therefore do not have the luxury of equity to use towards a deposit and to cover the costs of purchasing a home.
Situation eases for cheap fixed rate customers [28.02.08]
According to a recent report the situation for consumers that are currently on cheap fixed rate mortgages that are due to come to an end is far less bleak than it was some months ago, with interest rate having fallen twice in the past few months.
What the experts are saying about future rate cuts [21.02.08]
As widely predicted the Bank of England decided to cut interest rates again this month for the second time since December, whilst trying to balance concerns over rising inflation and worries over a slowing economy.
More Information:
Your Credit Rating And Your Mortgage
Your credit rating is something that contrary to popular belief you can have some control over. Here's how and how it might affect your mortgage application.
Joint Mortgages
Joint mortgages can be a useful way to get on the housing ladder, whether the person you take one out with is your life partner or simply a friend. So what are the pros and cons?
The True Cost Of Your Mortgage
It’s easy to say "go and research the market place to find the cheapest mortgage", but is it that easy to actually do it and how do you know that you have really got the best mortgage deal when you’ve finished?
Don’t Forget The Extra Hidden Costs Of Getting A UK Mortgage
For most of us, buying a new home is both one of the most exciting and stressful times of our lives. It goes without saying then that this is not a particularly good time to find out that you may be facing a bill of thousands of pounds in extra hidden costs for getting the mortgage to buy the UK property.
