About Mortgages
Buying a property is the largest single transaction in most people’s lives.
Whether you are a first-time buyer, moving up the housing ladder, thinking about purchasing a buy-to-let property or perhaps even looking for a more competitive interest rate, it’s important that you have the right mortgage in place.
Our Advisers have expert knowledge and can guide you through all the mortgages available, helping you to choose the right deal at a competitive rate of interest.
When choosing a mortgage, don’t just focus on the interest rate and fees you’ll be charged. You also need to consider what type of mortgage you want.
There are two main types of mortgages:
- Fixed-rate: The interest you’re charged stays the same for a number of years, typically between two to five years.
- Variable-rate: The interest you pay can change.
Fixed-rate mortgages
The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates. You’ll see them advertised as ‘two-year fix’ or ‘five-year fix’, for example, along with the interest rate charged for that period.
Advantages
Peace of mind that your monthly payments will stay the same, helping you to budget
Disadvantages
- Fixed-rate deals are usually slightly higher than variable-rate mortgages
- If interest rates fall, you won’t benefit
- The end of the fixed period – you should look for a new mortgage deal two to three months before it ends or you’ll be moved automatically onto your lender’s standard variable rate which is usually higher.
Variable-rate mortgages
With variable-rate mortgages, the interest rate can change at any time.
Make sure you have some savings set aside so that you can afford an increase in your payments if rates do rise.
The information within this article is purely for information purposes only and does not constitute individual advice.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
Standard variable rate (SVR)
This is the normal interest rate your mortgage lender charges homebuyers and it will last as long as your mortgage or until you take out another mortgage deal.
Changes in the interest rate might occur after a rise or fall in the base rate set by the Bank of England.
Advantages
Freedom – you can overpay or leave at any time
Disadvantages
Your rate can be changed at any time during the loan
Discount mortgages
This is a discount off the lender’s standard variable rate (SVR) and only applies for a certain length of time, typically two or three years.
But it pays to shop around. SVRs differ across lenders, so don’t assume that the bigger the discount, the lower the interest rate.
Advantages
- Cost – the rate starts off cheaper which will keep monthly repayments lower
- If the lender cuts its SVR, you’ll pay less each month
Disadvantages
- Budgeting – the lender is free to raise its SVR at any time
- If Bank of England base rates rise, you’ll probably see the discount rate increase too
Tracker mortgages
Tracker mortgages move directly in line with another interest rate – normally the Bank of England’s base rate plus a few percent.
So if the base rate goes up by 0.5%, your rate will go up by the same amount.
Usually, they have a short life, typically two to five years, though some lenders offer trackers which last for the life of your mortgage or until you switch to another deal.
Advantages
- If the rate it is tracking falls, so will your mortgage payments
Disadvantages
- If the rate it is tracking increases, so will your mortgage payments
- You might have to pay an early repayment charge if you want to switch before the deal ends
Capped rate mortgages
Your rate moves in line normally with the lender’s SVR. But the cap means the rate can’t rise above a certain level.
Advantages
- Certainty – your rate won’t rise above a certain level. But make sure you could afford repayments if it rises to the level of the cap.
- Cheaper – your rate will fall if the SVR comes down.
Disadvantages
- The cap tends to be set quite high;
- The rate is generally higher than other variable and fixed rates;
- Your lender can change the rate at any time up to the level of the cap.
Offset mortgages
These work by linking your savings and current account to your mortgage so that you only pay interest on the difference.
You still repay your mortgage every month as usual, but your savings act as an overpayment which helps to clear your mortgage early.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments
Mortgage Products
There are several terms used to describe the interest rates you pay on a mortgage and key terms.
The Basics
Buying a property can be a stressful and time consuming experience, although nowadays the financing of a mortgage is a case of finding and selecting the most suitable mortgage, rather than simply accepting a lender’s offer.
When you take out a mortgage you must choose how you are going to repay it. You can either go for an interest-only or a repayment mortgage.
- With a repayment mortgage, every month you pay back both the interest on your mortgage AND some of the loan itself. By the end of the mortgage term, usually 25 years, you have paid off the entire debt.
- With an interest-only mortgage, you only pay back the interest on your loan. This means your monthly payments are much lower, but you will still need to pay off the loan at the end of the mortgage term.
Most borrowers should avoid interest-only mortgages unless you are confident that you have savings that can pay off the capital. Most banks will now insist on seeing evidence of this so-called ‘investment vehicle’ before handing out an interest-only mortgage. Banks will not allow you to rely on house price growth, or even the promise of an inheritance, as a means of repaying the loan. However, if you are a buy-to-let investor interest-only may be the way to go.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
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