A guide to mortgage types
When entering the world of mortgages and home owning, the sheer volume of options on offer can initially seem overwhelming. While there are a lot of different home loans offered by lenders to suit many different purposes, finding the right mortgage match for you can take a bit of digging.
Our mortgage services are on hand to help you navigate the mortgage market. We can tell you about your available options and advise you on the best possible path.
No matter what mortgage you go with, you will need to have an initial lump sum of money called a deposit in order to buy your home. The bigger your deposit, the more likely you are to get a better interest rate on your mortgage loan than if you had a smaller deposit. But don’t forget that there will be other associated costs to purchasing a home which you will need to account for. We recommend you speak to a mortgage advisor so they can help you plan accordingly.
Standard Variable Rate mortgage (SVR)
A Standard Variable Rate mortgage is based on an interest rate set by the lender that can go or down in accordance with the market and lender’s description.
A benefit to this type of mortgage is that it can be very flexible and sometimes allow you to pay your mortgage off early without incurring an early repayment charge. However, the negative aspects of this mortgage type is that budgeting can be more difficult because you don’t know how much you will have to pay each month.
Fixed Rate mortgage
A fixed rate mortgage means that for a fixed term (i.e 2, 3, 5 or 10 years) monthly payments will stay at exactly the same amount. At the end of this term, you will normally pay the standard variable rate. This can be good option if you want to know the exact amount you will need to pay every month. It also means that if other interest rates increase, what you pay will stay the same for the fixed term. But the benefit of this mortgage is also the downfall. While your rate will stay the same if rates go up, if will also stay the same if rates go down.
If you opt for a tracker mortgage, this means that the interest rate you pay will be linked to a rate, such as the Bank of England base rate, and will go up and down as this rate does. If the rate changes, yours will change by the same amount. But again, the amount you pay every month can change which will make budgeting difficult.
This differs from an SVR mortgage in that an SVR interest rate is set by the lender, and while it may be based on the Bank of England base rate, they are not obliged to change them by the same amount. A tracker mortgage however, tracks an independently set base rate − such as the Bank of England’s base rate for an agreed period.
Some lenders impose a collar for how low interest rates can go, so even if the rate it’s tracking continues to go down, you will not benefit from it. Lenders can also apply a cap, which does the same thing but in reverse, so if interest rates soar you won’t have to pay above your cap.
A bit more complicated, but an offset mortgage can be hugely beneficial to some. The amount of interest you pay is linked to your current and/or savings account. As your savings go up, the amount of interest charged will go down.
For example, you take out a mortgage for £100,000, and you have £20,000 in savings offset against it. You will only pay interest on £80,000 of your mortgage. As you are only being charged interest on a lower amount. You can either keep the payments the same which will reduce the overall term of the mortgage, or reduce your monthly payments. Overpaying mortgage payments each month pays off your mortgage sooner, meaning you will pay less interest overall.
These are not the only available mortgages, an advisor will be able to give you a full overview of mortgage types so you can find your perfect match.
So how can we help? Andrews has been in the property industry for 70 years in, so we know about mortgages, moving and everything property. Pop into your local branch to experience our award winning mortgage services. We’re here to help you find your perfect place.