There are many types of mortgages available on the market and it can be confusing to know which one is right for you, so we have outlined the basics below.
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With this type of mortgage, you repay part of the amount borrowed together with the interest being charged each month. In the earlier years of your mortgage, the majority of your monthly repayment is made up of interest.
However, towards the latter part of your mortgage term, the situation is reversed and the majority of your monthly payment will deduct from the amount borrowed.
Apart from the purpose of the mortgage, the main difference with a buy-to-let mortgage is that the lender will use the rent you will receive for the property to assess affordability. Some may also take the landlord’s personal income into account.
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With this type, you are only paying interest each month. This means that although your payments will be lower, the amount you borrow will still be outstanding at the end of the mortgage term. You will need to have credible arrangements to pay off the mortgage to avoid the property having to be sold, this will have to be an appropriate repayment plan that is best discussed with an IFA
Typically, a current account, savings account, or both, are linked to your mortgage and, each month, the amount in these accounts is then offset against your outstanding mortgage. You are unlikely to earn interest on your savings which are offset.
You can vary the amount you pay each month and take payment holidays in some circumstances. It may help to reduce your mortgage with lump sum payments without incurring an early repayment charge.
Standard Variable Rates (SVR)
With this type of rate, your payments should rise and fall in line with the Bank of England bank rate changes, but not necessarily at the same time or by the same amount.
Tracker Variable Rates
Tracker variable rates are usually linked to the Bank of England bank rate, which means they will change in line with this.
With a capped rate mortgage, you will know the maximum you will pay for a set period of time. This type of mortgage offers you the option of knowing the maximum monthly repayments you would have to make during a set period of, typically, two or three years.
Fixed rates give you the security of knowing that your monthly payments will always be the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over two, three or five years.
Discount Variable Rates
Allows you to benefit from a discount on the lender’s standard variable rate. If the lender’s standard variable rate (SVR) increases or decreases, so does the discounted rate. Typically, the shorter the discounted period the larger the discount.
Stepped Interest Rates
A stepped rate mortgage is generally a mortgage rate that starts off at one interest rate for a short set period and then jumps to another rate afterwards.
If you wish to leave the stepped rate within the set time period you could be liable for an early repayment penalty.
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We always aim to provide a high quality service to our customers. However, if you encounter any problems and we are unable to resolve them you can take your complaint to an independent Ombudsman. Our advice is covered under the Financial Ombudsman Service (www.http://www.financial-ombudsman.org.uk/consumer/complaints.htm). You may be able to submit a claim through the EU Online Dispute Resolution Platform (https://webgate.ec.europa.eu/odr/main/?event=main.home.show if you live outside the United Kingdom or if you prefer not to deal directly with the Financial Ombudsman Service.)