A mortgage is a loan you take out to buy a property. Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but don't move home it's referred to as a 'remortgage'.
Mortgage types
There are two main types of mortgage:
Repayment mortgage
- Each monthly repayment to your lender consists of an element of capital and interest
- Gradually your loan reduces
- At the end of the term your mortgage will be repaid, providing you keep up your monthly repayments, including any admin charges
- Suitable for people who would like to guarantee the repayment of their mortgage
Interest only mortgage
- Monthly repayment consists of interest only
- As no capital repayments are made during the term of this mortgage, monthly costs are lower, however the equity in your home will be dependent on increases or decreases in market prices
- Suitable in limited circumstances for people who do not wish to repay the capital until the end of the mortgage term
- Repayment of the loan is self-managed by you and would usually be paid from proceeds of the sale of your home, inheritance, savings or investments
- This type of mortgage is not accepted by all lenders unless an investment vehicle is also selected and in place
- If the proceeds of your repayment vehicle doesn’t cover the full amount of your mortgage, you’ll be responsible for paying the difference
Mortgage options
Fixed
- Helps you to budget– exact cost known
- You are protected from rate increases (during fixed period)
But...
- Likely to have early repayment charges and arrangement fees
- You will not benefit from rate reductions (during fixed period)
Variable
- You always pay the lender’s current rate - no hidden extra charges
- You may benefit from rate reductions
- You are unlikely to have any arrangement fees or early repayment charges
But...
- You may find budgeting difficult
- You are not protected from rate increases
Discount
- You may benefit from rate reductions
But...
- You may have early repayment charges
- You may find budgeting difficult
- You may have to pay an arrangement fee
- You are not protected from rate increases
Capped
- Helps you to budget - maximum payment known
- You are protected from rate increases above the capped rate during the period of the cap
- Benefit from interest rate falls
But...
- Has early repayment charges and arrangement fees
- Interest rates can still go up, albeit only up to the maximum capped rate
- Capped rates can be more expensive at the outset than some of the other options available
Base Rate Tracker
- Similar to variable
- Follows an interest rate that is usually set in line with the Bank of England base rate for a certain period of time
- Payments more accurately reflect underlying interest rates of the time
- You may benefit from immediate rate reductions
But...
- You may have to pay an arrangement fee
- You may find budgeting difficult
- You are not protected from rate increases
- Immediately follows base rate increases
- You may have early repayment charges
Offset
- Ability to decrease or increase monthly payments
- Ability to take payment holidays
- Option to reduce loan by paying off a lump sum
- Ability to release capital
- Interest calculated daily/monthly
- Ability to offset savings against borrowings (offset mortgage)
But…
- Interest will be payable on payment holidays
- Limited lenders currently offer this facility
- Potential loss of savings interest if you offset
The mortgage options available to you will depend on your circumstances.
Please note: Countrywide Mortgage Services does not provide advice or guidance in relation to repayment strategies for Interest Only Mortgages and is unable to assess the creditability of them. You should seek independent advice if you need further information.
