Types of Mortgages
Things may seem a bit confusing especially when it comes to choosing the right mortgage plan. This is mainly because there are quite a lot of options, which you can consider. Sometimes people tend to go for the mortgage plans offering the cheapest rates, which can often be a big gamble to make. However, there are other factors as well which might help you decide which type is the best one for you.
It is essential for you to have an extensive understanding regarding different types of mortgage. In this way, you will be well aware of how they operate and which one suits you the best. You can compare all types of mortgages and the best mortgage rates using CompareMyRates.
Here is a list of the different types of mortgage for you to find out:
In interest only-loans, you have to pay the interest on a monthly basis and the capital is to be paid after the term has ended from the amount you have saved over time.
The plan requires you to save money throughout the term and to have the required amount at the time of payment. If you don’t have the required money at hand, you might have to sell your house, using the extra-earned price to remortgage and settle the debt. The plan requires you to be confident, as there are certain risks, which indicate you might not be able to pay on time. In such cases, the lenders usually demand information on the means to pay them at the end. There is an option to switch to repayment mortgage if you are not confident about repaying on time.
A basic mortgage plan, which consists of you paying some of the interest and capital you have borrowed. The period is mostly of 25 years, which includes you paying the whole debt and getting absolute ownership of your house.
This particular mortgage plan works for you if you want to make sure that at the end of the period, your house would be paid for.
Discount Rate Mortgages
The plan mostly depends on the lender’s standard variable (SVR). The plan is one of the cheapest of the types but it can vary according to the SVR. The discount is given on the SVR and the mortgage period is mostly fixed, usually of 2-5 years.
The plan will suit you if you are looking for cheap rates and can afford to pay more if in case the rates go up.
Capped Rate Mortgages
This is a type of variable rate mortgage, which comes up with a cap. The cap lets you know how high and low the rates can go which keeps you in the comfort zone.
Due to low rates, lenders usually don’t make use of capped rate mortgages. If you are a buyer and believe that the rates will get high in the future, the plan is a suitable choice for you.
Fixed Rate Mortgages
A plan which lets you know how much you are going to pay for the fixed time period of usually of 2-5 years and even more in some cases. A major disadvantage is that you will have to pay more in case of a decrease in other interest rates.
If you want to switch from the fixed rate mortgage plan, a repayment charge has to be paid. People usually switch when they are put on the lender’s SVR at the end of the period to other fixed plans. A cautious budgeting approach alongside all the information on the fixed payment is all you need to get the perfect match for this particular plan.
Variable Rates Mortgages
In this plan, the mortgage rate varies and is mainly influenced by the Bank of England’s base rates and some other important factors. The mortgage rate is also dependent on the lender’s SVR as the mortgage value can change due to the varying SVR even when the base rate doesn’t change. The plan is also a big gamble to take and will suit you best if you hope that the rates will go down.
The plan is mainly dependent on the Bank of England’s base rates. The rates can increase and decrease simultaneously with the varying base rates.
If you can afford to pay higher rates in hopes that they might fluctuate a bit in the future, this plan suits you the best.
People who can pay only a 5% deposit are eligible for this plan. In case the house prices go down, your house’s value might be even less worth than your mortgage value.
The lenders usually charge a higher mortgage rate due to the large number of risks involved. If you are struggling to save a deposit, the plan is ideal for you.
The plan consists of a marketing approach where the lender pays you back in form of a loan percentage when you take out their mortgages. A careful evaluation of the interest rates to be paid along with the extra charges is required in the plan. This will help you if you need a large sum of money in case of moving houses.
In this plan, the lender usually evaluates your savings account and then decides on the mortgage value. Offset mortgages usually involve the combining of your savings account and the required mortgage.
The plan is considered a bit more expensive than other types and will only suit you best if you have good savings or if you are a higher rate taxpayer.
If you are having financial issues and are willing to pay less or more at a time, the plan will suit you best. It is available for all mortgage types except the First time buyer mortgage plans and can also allow payment holidays in case of difficult times.
First Time Buyer and Buy to Let Mortgages
First-time buyers can opt for any mortgage plan except the ‘Buy to let’ plan. The Buy to let schemes is for people who first buy and then rent out their respective properties. This involves you borrowing amount based on rent you are receiving.
Now that you know all the different types of mortgages, decide which one you need and get the best mortgage rate you can find online.
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