When it comes to mortgages, there are various types tailored to different financial situations and preferences. Here’s an overview of the main options:
- Capital Repayment Mortgages: With this type of mortgage, your monthly payments cover both the interest on the loan and a portion of the capital (the amount you borrowed). Over time, as you continue making payments, the capital amount decreases, and you’ll eventually pay off the mortgage entirely by the end of the term.
- Interest-Only Mortgages: As the name suggests, you only pay the interest on the loan each month. The capital remains the same throughout the mortgage term, so you’ll need to have a separate plan in place to pay off the full amount you borrowed at the end of the mortgage term.
- Fixed-Rate Mortgages: With a fixed-rate mortgage, your interest rate is set for a specific number of years, typically two to five years, but it can be longer. This means your monthly payments remain the same during this period, providing certainty and protection against interest rate rises.
- Variable Rate Mortgages: These come with interest rates that can change over time, usually based on your lender’s standard variable rate (SVR). While the SVR may fluctuate, your monthly payments may not always remain consistent. Variable rate mortgages can be more unpredictable, so it’s essential to budget for possible changes.
- Tracker Mortgages: Tracker mortgages follow a nominated interest rate, most commonly the Bank of England base rate. If the base rate goes up, your mortgage rate increases by the same amount, and if the base rate falls, your payments decrease accordingly. These mortgages can be a good option if you believe interest rates will stay low or decrease.
- Discounted Rate Mortgages: These mortgages offer a discount off the lender’s standard variable rate for a set period. While the discount remains fixed, the actual interest rate you pay can still change if the SVR changes, so it’s important to consider the potential for fluctuation.
- Capped Rate Mortgages: With a capped rate mortgage, your interest rate can vary but will never exceed a set upper limit (the “cap”). This gives you some protection against rising interest rates while allowing you to benefit from rate decreases.
- Cashback Mortgages: These mortgages provide a lump-sum cashback payment when you take out the mortgage. While tempting, these deals may come with higher interest rates or additional restrictions, so it’s important to weigh the pros and cons.
- Offset Mortgages: An offset mortgage links your savings and mortgage accounts, and your savings balance is used to offset the amount of interest you pay on your mortgage. For example, if you have a £200,000 mortgage and £20,000 in savings, you only pay interest on £180,000. This can be a tax-efficient way to save on interest.
- Flexible Mortgages: These mortgages allow you to overpay, underpay, or even take payment holidays, giving you flexibility to adjust your payments based on your financial situation. They are particularly useful if your income fluctuates or you want the option to pay off your mortgage faster.
- First-Time Buyer Mortgages: Specifically designed for those getting on the property ladder, these mortgages often come with lower deposit requirements or incentives such as cashback or free valuations.
- Buy-to-Let Mortgages: If you’re purchasing a property to rent out, you’ll need a buy-to-let mortgage. These typically require a larger deposit and come with higher interest rates. Lenders often assess your potential rental income to ensure it covers the mortgage payments.
Navigating the mortgage market can be complex, with each option having its own benefits and drawbacks. It’s crucial to get professional mortgage advice to find the best mortgage for your circumstances. Feel free to get in touch with us for guidance tailored to your financial needs and goals. It’s important to note that some options, like flexible mortgages and certain cashback or capped rate deals, may be more niche and offered by specific lenders.
The Financial Conduct Authority do not regulate some buy to let mortgages
