Regardless of whether you’re a first-time buyer, you’re looking to expand your property portfolio or you’re looking to remortgage, it’s important that you have an understanding of the different types of mortgages available to you.
Knowing about the different types of mortgages and choosing the right one for you can save you thousands of pounds – read on to learn about the main types of mortgages and how to find the right mortgage for you.
What Is A Mortgage?
A mortgage is a type of loan that you use to buy a property. During the home purchase process, you’ll put down a deposit. The deposit is typically 10% of the purchase price, although some lenders will offer mortgages up to 95% loan-to-value, which means you may only need a 5% deposit of the property price.
You’ll pay for the rest of the property using a mortgage plus interest costs in monthly instalments. The shorter the mortgage term, the higher the monthly payments will be, and the longer the mortgage term, the lower the payments will be per month.
The Main Types Of Mortgage
One size does not fit all when it comes to mortgages – there are a variety of different types of mortgages, each with its own benefits. Read on for information on some of the main mortgage types that may be available to you.
Standard Variable Rate Mortgage
Different lenders will have their own SVR (standard variable rate) – and it can be set at pretty much any level. This means that it doesn’t have to be in line with the Bank of England base rate.
If you choose a standard variable mortgage, then you should know that the lender could change the rate at any point, meaning that your monthly payments could increase.
The chances of the lender raising the SVR and your payments rising are greatly increased if the Bank of England raises their base rate. Many people will use a variable rate tracker to understand their monthly payments.
Unlike SVR mortgages, you’ll pay a fixed mortgage interest rate for the entire mortgage term. This means that if interest rates change elsewhere, you won’t be affected.
When you come to the end of your fixed mortgage term, however, the mortgage rate will revert to the lender’s SVR. Many people prefer fixed-rate mortgages as they know exactly what they’ll be paying per month – and they don’t have to worry about being charged higher interest rates if the rates change.
A tracker mortgage tracks the Bank of England base rate. The base rate is currently 1% – so with a tracker mortgage, you may be required to pay the base rate plus 2% or 3%. However, this can vary from lender to lender.
Tracker mortgages are generally available as an introductory deal, and you’ll revert to the lender’s SVR after a short period. That being said, it’s not impossible to find a lifetime tracker mortgage that tracks the base rate of the Bank of England for the whole mortgage term.
If you choose a discounted mortgage, you’ll pay the lender’s SVR but have a certain fixed amount discounted. This type of mortgage can be stepped, which means you can take out a deal for a few years, paying a certain rate for 1 year or so and then a higher interest rate for the remainder of the deal.
If you were given an SVR of 5% and your discounted mortgage deal had a 2% discount, you’ll pay 3%. Some variable rates are capped which means they can’t fall below a certain amount or go above a certain amount.
An offset mortgage links your mortgage to your savings account. Your savings balance s used to reduce the amount of interest charged on the mortgage. This works by having your savings as an ‘offset’ against the value of your mortgage so you only pay interest on your mortgage balance minus the balance of your savings.
From this, you can choose to either lower the monthly payment of your mortgage or you can shorten the length of your mortgage term. This is a powerful way for a mortgage to be paid quickly for people who have an excess amount of savings.
Finding The Right Mortgage For You
We have relationships with both specialist and high street lenders in and around the Merseyside area and can secure you the best deals.
Contact our dedicated team of mortgage brokers in Liverpool today to book an appointment and find the best deals for you and your circumstances. After all, one size does not fit all when it comes to mortgages – and what works for you may not work for somebody else.
Liam Coker is a highly skilled mortgage and protection specialist who delivers excellent customer service. His knowledge of the mortgage industry is key to finding the correct solution for people’s specific needs.