March 13, 2012

Mortgage Types

Mortgage AdviserSince the market is quite competitive, banks and other financial institutions are constantly revising and expanding the mortgages they have to offer, and choosing one can seem to be quite complicated. To assist you in your search, here is an overview of the types of mortgages available in the UK today:

Fixed rate mortgage

With a fixed-rate mortgage, the lender will agree on a set interest rate for your loan for an established time period. After that, in most cases, the interest rate will revert to your lender’s variable rate.

Standard variable rate mortgage

All mortgage lenders have a standard variable rate (SVR), which is the basis of all their mortgage deals. The rate itself is derived from the Bank of London’s own base lending rate, and it is established by their monetary policy committee (MPC).

It’s common for a mortgage to revert to this after a fixed period expires, people often consider remortgaging or re-fixing at this point.

Capped rate mortgage

With a capped rate mortgage, there will be a limit of the amount of interest to be paid for a certain period of time. It will fall when there is a decrease in the variable rate, but you will also be protected from any rate increases that occur.

Tracker rate mortgage

A tracker mortgage has an interest rate that follows the Bank of England’s current lending rate. Such a deal may last for a certain period of time and revert to your lender’s SVR after that, or it may be a “lifetime” tracker that applies to the entire mortgage term.

Discount mortgage

Discount mortgages are available because many lenders offer an approved applicant a discount on their current SVR for a certain time period, and when that expires, the SVR will apply for the balance of the loan.

Flexible mortgage

If you obtain a mortgage with a flexible interest rate, you will be able to adjust your monthly payments according to your present circumstances without being charged a penalty. This may include making occasional over payments or underpayments, drawing down some cash, or taking a payment holiday.

Offset mortgage

With an offset mortgage, the funds you have in various banks accounts are counted against your mortgage to reduce the amount you owe on the loan.

Interest only mortgage

If you have an interest-only mortgage, you will be paying nothing toward the principal, but the interest rate is much lower than it is for virtually any other type of mortgage. However, when the set time period expires, you will still owe the amount you borrowed, and your home might be repossessed. In this situation, you will have to find a way repaying the capital debt to keep that from happening.

If you take the time to do some research and avoid making a hasty decision, you are sure to find a mortgage that you will be able to manage.

Mortgage comparison sites are a good place to start when looking for rates but remember if you’re unsure what the best mortgage type is for your circumstances or would just like some more information should speak with an independent mortgage adviser.