Types of Mortgages Explained | Mortgage Advice in Hull
Mortgage Advisor in Hull
The Different Types of Mortgages
Whether you are being introduced into the mortgage world as a First-Time Buyer or are going through the process of Moving Home, you will realise that there are lots of different types of mortgages available. Some are more popular than others and some may even be hard to find. We have put together a list of some of the most common mortgage types that you will come across. You will also find one of our moneymanTV episodes for each mortgage type, we hope you find them useful!
What is a Fixed-Rate Mortgage
A fixed-rate mortgage means that your mortgage payments are going to stay the same for a set period of time. You can set the length of which you want to fix your payments for, typically this being 2, 3 or 5 years or longer. No matter what happens to inflation, interest rates or the economy you know that your mortgage payment, usually your biggest outgoing, will not change.
What is a Tracker Mortgage?
A tracker mortgage means that your interest rate will track the Bank of England’s base rate. So in other words, the lender that you are with does not actually set the rate themselves. You will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying a rate of 2%.
What is a Repayment Mortgage?
When you take out a repayment mortgage this means that each month you are paying capital and interest combined. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property becomes yours. This is the most risk-free way to pay your capital back to the lender, in the early years it is mainly the interest that you are paying and your balance will reduce very slowly especially if you have taken out a 25, 30 or 35-year term. This situation switches in the last ten years or so of your mortgage, where your payments are paying off more capital than interest and the balance will come down much faster.
What is an Interest Only Mortgage
Whilst many buy to let mortgages are set up on an interest-only basis, it is much more difficult to get a residential property on an interest-only basis. It is much less likely for lenders to offer an interest-only product now. However, there are certain circumstances where this can be an option. These include downsizing when you are older or have other investments what you will use to pay the capital back. Lenders are very strict when it comes to offering these products now and the loan to values are a lot lower than back in the day.
What is an Offset Mortgage?
With an offset mortgage, the lender will set you up a savings account to go alongside your mortgage account. How this works is that let’s say you have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you only pay interest on the difference, so in this case, £80,000. This can be a very efficient way of managing your money, especially if you are a higher rate taxpayer.