A Mortgage is a form of a Loan of money towards the purchase price of a property. You will rarely get 100% of the value of the home, the difference of which you will have to make up which will be your deposit, normally your savings. The amount you can borrow will depend on a number of factors, but normally includeyour income and affordability, your credit file, the period you are looking to pay the loan back in[usually 25 years].
A Mortgage is a Legal Agreement, and you are responsible for keeping up payments. If you are unable to do so, your home may be repossessed by the Mortgage Lender.
A mortgage can have two elements,
- Capital – this is the amount borrowed
- Interest – this is charged on top of the capital by the lender for the use of the capital over a period of time.
Interest Only Mortgage – This will mean that the amount lent by the Lender will remain to be paid at the end of the term of the Mortgage period. You will have lower monthly payments as you will be paying interest onlyon the money you have borrowed.
Repayment (capital and interest) – You will pay part of the capital [money borrowed] every month as well asthe interest. At the end of the term you will have paid all of the capital off together with the interest for the use of the capital.
Fixed Rate Mortgage –A fixed rate mortgage is when the interest rate agreed by you remains the same for a set period for example 2, 4, years or longer. This means thatmonthly paymentsremain the same allowing you to make consistent fixed payments without worrying about the payments going up, due to interest rate changes.
Variable Rate Mortgage– A variable rate mortgage is one when your monthly repayments could go up or down depending on the mortgage lenders interest rate. You may be on a low rate to begin with but this does not mean it will remain low and may go up in the future.
Tracker Mortgage – A tracker mortgage is similar to a variable rate mortgage where your payments could go up or down, however a tracker mortgage is linked to the bank of England’s base rate where it tracks it rate by a certain percent, which means if the base rate was to go up then so does your monthly payments.
Capped Rate Mortgages– this is a mortgage where your monthly payment will not go above a certain level regardless how much the interest rates increase but at the same time if the interest rate was to decrease so would your payments
Collared Mortgages – A mortgage collar is similar to a tracker and capped mortgage. There is a set level from which your payments will never fall. There will be a minimum amount of interest you pay during the term of your mortgage.
Cash back Mortgages– This is when a lump sum of cash is given back to you by a lender at the beginning of your mortgage. Many lenders give cash back as an incentive.
Offset mortgages- this mortgage allows you to save interest you will pay on your mortgage by linking your mortgage to one or multiple bank accounts. For example if you have a mortgage of £150,000 and have a saving of £30,000 you will only have to pay interest on £120,000. However, if your savings were to go up or down, so will the payment of the mortgage on which interest is charged.
