The market is loaded with different types of mortgages. With so much choice, picking the right mortgage can be totally a tedious task. Regardless of the type of mortgage you choose, you should be able to repay the loan in full by the end of the mortgage term.
The Mortgage and Your Home
A mortgage is simply a secured loan extended by a bank or building society. Mortgages have been designed to be repaid with interest within 25 to 30 years. Being a secured loan, the lender attaches your property as security for the mortgage. In short, if you default on your monthly payments or you are unable to repay your loan within the agreed term, the lender has all the right to foreclose your property. The lender then has the right to sell your property to recover the money loaned to you. There are a lot of types of Mortgages available. Make sure you find the right fit.
Which Mortgage is Right for You?
There are several types of mortgages. Choosing which type of mortgage is suited to your needs is probably the biggest financial decision you will make in your lifetime. How then do you choose which mortgage is right for you?
- Standard Variable Rate (SVR). As the interest rate increases or decreases each month, so does the amount of interest you need to pay.
- Base Rate Tracker Mortgage. Tracker Mortgages follow the base rate of the Bank of England. Each time the Bank England’s base rate increases or decreases, so does the base rate on your mortgage. Some trackers have safety nets wherein there is a minimum base rate and the rate cannot drop below.
- Discounted Mortgage. This gives you a discount from the SVR for a determined period of time. You will usually get a discount based on the Tracker rate. It is therefore important that you need to know the discount, the interest rate and the length of time the discount is on.
- Fixed Rate Mortgage. With this type of mortgage you will get a guaranteed interest rate, usually for a couple of years. The guaranteed interest rate is only for a couple of years and not for the entire duration of the mortgage. If the interest rate increases or decreases, you will be charged the guaranteed interest rate.
- Capped Mortgage. This is a cross between a Standard Variable Rate and a fixed mortgage. With a capped mortgage, the based rate has a ceiling. This means the based rate will not increase more than the maximum base rate. With this type of mortgage, you will be protected from an over increase in interest rates. The set ceiling though can be super high.
- Current Account Mortgage. This involves combining your mortgage and current account into one account. You will then be charged interest on the total amount borrowed only after getting the balances in either your savings or current accounts.
- Offset Mortgage. Your savings and current accounts are separate from the mortgage you ought your lender.
Choose from among the numerous types of mortgage you feel will give you the best deal.
Making the Right Decision
Choosing the right mortgage can save you hundreds of pounds. Asking your bank or building society for suggestions can help you choose from amongst the types of mortgages available.