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Types of Mortgage

There are numerous different types of mortgages - new types are being brought out all the time. However mortgages generally fall into two types of family depending on how the capital is repaid.

     Capital Repayment

             You pay off part of the outstanding capital each month. If you keep up and make all the repayments you                  know at the end of the mortgage term your mortgage will be fully repaid.

      Interest Only

             You only pay interest to the lender each month. The original mortgage amount remains the same for the                  term of the loan. You use an investment to pay off the mortgage at the end of the term. Usually either                  an endowment or ISA portfolio.

    You also have various interest rate options

      Variable Rate

             The rate generally goes up or down in line with the Bank of England Base Rate. The rate may change as                  soon as the Base Rate changes or less frequently ie once a  year. These changes could have a                  significant impact on your monthly repayments over time. The lender does not usually charge a booking                  fee

       Fixed Rate

             The interest rate is fixed in advance for a set period, usually 2 to 5 years. This means you can budget                  your household expenses as you know how much you are going to pay each month. Lenders usually                  charge a booking fee to have a fixed rate, early repayment charges may also be imposed if you repay                  the mortgage off during the fixed rate period.

       Capped Rate

             The rate generally goes up or down in line with the base rate, however there is a guaranteed maximum                  rate, or cap. This means if interest rates keep rising you will not be charged more than the capped                  rate. This will protect you from high rises in interest rates while at the same time still benefiting if the                  interest rates fall. Early repayment charges may be imposed if you repay the mortgage off during the                  capped rate period.

        Discounted Interest Rate

             The lender will give you a discount (eg 2 or 3%) off your  variable interest rate usually for a set period.                  This means the interest rate you pay will still vary up or down but at a lower rate than the                  general interest rate. Early repayment charges may be imposed if you repay the mortgage off during                  the discounted rate period.

   Some popular mortgage types you may have heard off

        Flexible Mortgages

             If you want to change your monthly repayments from time to time when you receive a bonus or                  commission or your financial circumstances vary,  these allow you to make additional repayments, take                  payment holidays, without having to suffer penalties. Regular overpaying can lead to the mortgage                  being paid off earlier and save you thousands of pounds of interest. Some enable you to use your                  mortgage account as a current account, giving you the options of a cheque book and debit card.

       Off-Set Mortgages

             Here any savings you have held in a specific account are taken off  from your outstanding mortgage                  balance. Your mortgage interest is calculated on this reduced balance.

        Buy to Let *

             Treating property as an investment. You purchase a property and then let it out. Due to the popularity                  of this there are now specific mortgages for this specialised area.

        Euro Mortgage *

             Purchasing property in Spain or France a Euro Mortgage could be the right choice. Changes in the                  exchange rate may increase the sterling equivalent of your debt.

        Self-Certification

             This is when you guarantee yourself that you can afford to repay the mortgage because you are                  unable to meet the usual requirements for proof of income. The drawback being you may be restricted                  as to the amount you can borrow against the property's value and may have a higher interest rate to                  pay. It is very important to note that if you make false declarations and/or inflate your income on a                  mortgage application form you may not be able to afford your mortgage repayments. You may also                  face criminal prosecution for mortgage fraud. All applicants will be subject to a feasibility assessment.

  * Not regulated by the FSA