Once your mortgage process has gotten underway, you will quickly come to realise that there are lots of different options available. Ranging from mortgages for First Time Buyers in Leeds to Home Buyers, even Remortgages, there are a lot of choices for you to look at.
Here we are going to look at a list of the most popular mortgage types available on the market. If you have any questions in regard to one of the below mortgage options, then please do not hesitate to get in touch with an experienced mortgage broker in Leeds.
A fixed-rate mortgage means that your mortgage payments will remain unchanged for a set length of time. You can set the duration of how long you want to fix your payments for, with the standard choices usually being 2, 3 or 5 years, sometimes longer.
Regardless of what happens to inflation, interest rates or the economy you know that your mortgage payment, likely your biggest outgoing, will not have any unexpected changes for that time period, remaining consistent.
A tracker mortgage is a specific mortgage type that alters the interest rate, depending on the Bank of England’s base rate. In short, this means that the lender that you are with does not set the rate themselves and cannot change it.
You will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means your rate will be 2%.
Repayment Mortgages is the name given to your standard mortgage types. Each month you will pay a combination of capital and interest. So as long as you keep up your monthly payments over the course of your mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property will completely belong to you.
This is thought to be the most risk-free way to pay your capital back to the mortgage lender. In the early years, you’ll mostly be paying interest and your balance may only be reducing at a slow pace, especially if you have taken out a 25, 30 or 35-year term.
This changes in the last ten years or so of your mortgage, where your payments are paying off more capital than interest and the balance will be paid off quicker.
Whilst many buy to let mortgages are set up on an interest-only basis, it is a more difficult task to get a residential property on an interest-only basis.
Nowadays it is a lot less likely for lenders to offer an interest-only product now. That being said, there are certain circumstances where this can possibly be an option, including downsizing when you are older or have other investments what you will use to pay the capital back.
Lenders are incredibly strict when it comes to offering these products now and the loan to values are a lot lower than they used to be in the past.
Initially growing in popularity over in Australia, Offset Mortgages are a flexible type of Mortgage Arrangement. Due to there being a lot more to these than your standard mortgage, the interest rates can be a little higher than you might initially expect. Offset Mortgages give you the ability to (if your lender will allow you) overpay your mortgage, or pay off a lump sum.
The most appealing aspect of these mortgages types is that the lender you end up going with will open up a savings account to run alongside your existing mortgage account. As an example, we’ll say that you take out a £100,000 mortgage but in your current savings, you already have £30,000. You can then put that £30,000 into the new savings account provided by your lender and only pay interest on the £70,000 that is left on the mortgage.
The concept behind this is that if you are able to maintain your payments per month, then you’re able to pay off the mortgage a lot sooner and without as much added interest.
In a similar vein to Fixed-Rate mortgages, Capped Rates have a maximum amount that a customer will have to pay each month, along with a maximum interest rate. This means that, for example, if you’re capped at say 5%, you’ll never go higher than 5%.
The benefit in these, however, is if interest rates start to drop. So for example, if the rates dropped to 4%, 3% or 2%, then your mortgage will follow suit.
Flexible mortgages allow you to overpay by unlimited amounts. Overpayments can be fairly beneficial, as you could end up paying off the mortgage early and with a lot less interest. Mortgage flexibility is normally a feature of Offset Mortgages, which you can read about in the above section.