Interest only mortgages

With this type of mortgage you repay the interest on your mortgage every month and pay off the capital debt (the value of the property) at the end of the mortgage. As you are only paying the interest the repayments are lower than those on a repayment mortgage.

However, unless you intend to sell your house to repay the capital debt, it is a good idea to save an additional amount each month to cover the capital debt. Increasingly numbers of first-time buyers have taken out interest-only mortgages and failing to put any money into investment. With high prices this has been the only way some people have managed to afford to buy property and they are relying on their property increasing in value when they sell the property in a few years and then purchase a property with a repayment mortgages.

Unfortunately, with house prices falling there is a risk that many people will end up owing most of the capital initially borrowed. Buy to let investors are the only borrowers who are advised to take our interest only mortgages with you investment allowance. This is because the rent should cover the interest payments and the long term plan is to sell the property in the future and pay off the capital.

Repayment mortgages

Repayment mortgages consist of the interest that you owe together with a payment towards the capital as well. If you keep up your mortgage repayments you are guaranteed to have paid off the mortgage by the end of the term. Repayment mortgages are the most popular type of mortgage in the UK.

Fixed Rate Mortgages

This type of mortgage is where you and the mortgage lender agree to fix the interest rate owed on your loan for a set period of time usually between 1 and 5 years although it can be longer. After the agreed period, the interest rate owed on your loan usually reverts to the lender’s variable rate.

With this type of mortgage you know exactly what you will owe but if interest rates drop you may be paying more than if you had opted for a variable mortgage.

If you want to leave before the agreed term there is usually an early redemption penalty. Always read the small print and make sure you fully understand the implications involved.

Standard variable rates

Borrowers who fail to regularly monitor the value of their mortgage deal tend to end up on standard variable rates. (SVR’s) The repayments on these tend to be uncompetitive when compared to special offers on the market. The rate moves broadly in line with the Bank of England's base rate, although the lender is not obliged to pass on the changes to the letter.

Tracker mortgages

These deals work in a similar way to variable rate mortgages. The difference is that the mortgage tracks the Bank of England base rate rather than the lender's SVR which means you are guaranteed to benefit from the full effect of any rate cut.

If you are considering a tracker mortgage you should tray and secure one with either no redemption charge, the option to switch to another deal or a cap on how high rates can go.

Discounted mortgages

These deals are linked to a lender's SVR but tend to track it at a discount or margin above it. The rates rise when the bank rate does but do tend to be more attractive than fixed-rate deals. With SVR’s falling to low levels as the base rate was cut, discounted deals have become scarce.

It is worth remembering that frequently switching deals will cost you money and you need to take these into account when you consider remortgaging your property. Please feel free to contact us to discuss your requirements so we can help find the right mortgage for you.