There are a vast array of mortgage deals out there offering different monthly payments, interest rates, and incentives and the jargon can be quite daunting. This guide runs through some things you might come across when searching for a mortgage and gives some clarity on what they mean.
Fixed Rate Mortgage
Generally, this means that your interest rate is guaranteed to stay the same over a set period of time. It is a good way to get peace of mind knowing what the repayment is going to be each month, it offers a sense of security in knowing you can budget and plan.
Normally you fix in for three to five years, however, this is sometimes even as long as fifteen years depending on the lender. You should review your mortgage at the end of the term with a Mortgage Broker and discuss the right option for you.
Variable Rate Mortgage
A Standard Variable Rate is a type of mortgage interest rate that you are more likely to transfer to once your Fixed Rate term has ended. It is the lender’s variable rate; you can be on a Fixed Rate and then transferred onto the Standard Variable Rate if you do not find another deal beforehand.
This rate can be more expensive than a Fixed Rate and doesn’t offer the same security a Fixed Rate mortgage does. Variable rates tend to follow the Bank of England base rate, so if this rate goes up or down, the lender will follow suit with your mortgage repayments.
Tracker Rate
A Tracker Mortgage is a rate that tracks the Bank of England Base Rate give or take by a percentage or two. They offer a little bit of flexibility, if you are a person who gets a lot of commission or bonuses and you want to do overpayments then you will be able to do so with this rate.
Discounted Rate
Similar to a Variable rate, a Discounted Rate deal is a percentage of a mortgage lender’s Standard Variable Rate (SVR). These rates can go up and down and the rate is set by the lender, this can sometimes be a risk that should be considered when selecting a rate.
Offset Rate
If you have capital in the bank, then an Offset Mortgage could be the right product for you. If you have money in the bank, you can offset this against your mortgage interest. You join a savings account with the mortgage account, combining them both resulting in paying less interest on the payments.
You still have access to your savings, but the less in the savings account, the less you are offsetting. For example, if you had a £150,000 mortgage and £50,000 in savings, you would only be paying interest on £100,000 of your mortgage as the rest is offset.
Repayment Types
There are two different types of repayment mortgages that are commonly seen on the mortgage market today. The most common is capital repayment when it comes to residential properties.
Capital Repayment
For this type of repayment, you are paying back capital and interest to the lender, if you keep up with repayments it is guaranteed you would have paid off the mortgage by the end of the term, which is agreed upon at the start.
You begin with paying more interest than capital, to begin with then gradually build to paying more capital than interest.
Interest Only Repayment
This type of repayment is becoming less and less popular because there are only certain lenders that will allow this repayment option. You have lower monthly repayments as you are paying the interest of the mortgage loan only. This means at the end of the term the entire original mortgage amount will need to be repaid.
There are pros and cons to all types of mortgages and the right product for you will depend upon your circumstances. If you are not sure where to begin, seek the advice of an expert Mortgage Broker.
Features on Mortgages
Some lenders will offer features alongside their mortgage products to offer incentives for you to choose them to borrow from.
Flexible Mortgage
This can mean several things, some lenders will offer a lower deposit flexible mortgage and another may offer for you to make repayments with no fee. There is a range of mortgage products on the market and a Mortgage Broker will be able to source the right one for you.
Cash Back Incentives
A mortgage lender will offer cash back if you decide to take out a mortgage with them, this can be a popular option for First Time Buyers. You can sometimes get up to £1,000, which can help with some of the fee costs that come with buying a new home.
Overpayment
An overpayment is when you pay more than what is required off of your monthly mortgage payment. It can mean your mortgage will be paid off quicker but some lenders will cap the amount you can overpay so check the criteria.
Payment Holidays
If you cannot afford to make a mortgage repayment one month do not hesitate to see if your lender has options for you. Payment breaks or holidays offer a break from paying the mortgage, yet the downside is that you will be adding interest on your mortgage.
The world is a bit crazy at the moment and mortgages are harder to get a hold of, it has never been more advisable to get hold of a Mortgage Broker and get advice on the mortgage market as soon as possible.
Why see a Mortgage Adviser?
Mortgage Advisers know what lenders are looking for and what products are out there for you. We can listen to your wants and needs and find the right products for you. The independent mortgage market is huge and it can be a search to find the right lender.
Here at The Mortgage Brokerage, we have access to the Whole Mortgage Market meaning we have access to all of the lenders. This means will cater to you completely and can offer you a free consultation to find out what is that you want and where you are currently at financially.
We will research the market for you and tell you the options that fit you, we can even give you quotes and help you plan and budget. We will not charge a fee until a lender has offered you a mortgage, everything we do upfront is for free. We are also authorised and regulated by the financial conduct authority (FCA) following a range of set requirements meaning we are qualified to give the advice you need.
