What types of mortages are there on the market? Can you explain them to me?
Self Cert mortgages
Self cert mortgage require no proof of income and this is why
these types of mortgages are now very hard to find and in danger of being taken off the shelves altogether as banks get tougher
on ensuring that people are taking out debt that they can afford to repay.
Repayment
mortgages
A repayment mortgage is one of the most popular types of mortgages. You make
a monthly payment which pays off part of the mortgage and the rest of the payment is used to pay off the interest
due. At the end of the repayment mortgage you will have paid for your home loan.
Interest only mortgages
Interest only mortgages have been phased out in 2010 by some banks as there is concern that at the end of the
loan the client may not be able to pay the amount oustanding back. With Interest only mortgages you only the interest on the
amount borrowed. To repay the actual amount borrowed you will need to take out a savings plan or sell the property if it has
risen enough in value. As you are only paying the interest on the loan your monthly payments will be cheaper than on a repayment
mortgage.
Buy to let mortgage
A buy to let mortgage is often taken out by someone that
wishes to buy a property so they can rent it out for an income. Multiple buy to let mortgages can be taken out for those wishing
to develop a property portfolio.
Fixed rate mortgage
With a fixed rate mortgage the rate of interest
that you will pay is fixed for a period of time set by the lender. This way you can plan in the near future exactly how much
your monthly payments will be. If interest rates go up on a fixed rate mortgage you will be the winner if however they
go down, as they have done in 2009 and 2010, then you will lose.
Variable rate mortgages
With
a variable rate mortgage the interest rate will change as the Bank of England changes its rate. If it remains low then your
payments will be low, but if interest rates rise then so will your mortgage repayments for your home loan.
Discount
rate mortgage
With a discounted rate mortgage you will pay less than the standard mortage interest rate for
a period of time.
Capped rate mortgage
Capped rate mortgages means that the bank or building
society will set an upper limit on what your mortgage interest rate will increase to. This means that there is an upper
limit of what your mortgage payments will be. in effect putting a cap on the amount your mortgage payments will rise
to as well. If you think interest rates may rise then this is a mortgage to consider.
