What are the Various Types of Mortgage Available in 2015?

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On the surface, it may seem that all mortgages are made the same. They are all, after all, long term loans against a property, right? Well a little deeper digging and you soon find that there is a whole range of different types and kinds. And, further, that the type of mortgage that you need will depend on your circumstances and the type of property you are purchasing.

The main variation with the different types of available mortgages revolves around how they are repaid and the way the interest is applied. The two main types are repayment mortgages and interest only mortgages; whereas the two main ways in which interest is charged are variable rates and fixed rates. These are summarized below: –

Repayment Mortgages

Repayment mortgages are the most common types of mortgage as they are considered to be the least risky. This is because with each monthly payment you pay off a chunk of the debt as well as the interest on it. This continues until, at the end of the term the mortgage is paid off.

Interest Only Mortgages

With interest only mortgages, on the other hand, your monthly repayments only cover the interest; they do not chip away at the debt. The advantage of this is that the monthly repayments will be substantially lower than a repayment mortgage. The difficulty, however, is that you will be expected to pay off the entire capital at the end of the term and the bank will not help you with this.

Variable Rates

A variable rate of interest means that you are changing the going rate of interest on your loan. Although this effectively means that your interest would change every time interest rates changed, what actually happens in practice is that the overall rate is calculated and altered once a year. Although you may start with a different kind of mortgage; it is likely that it will revert to this kind of mortgage eventually.

Fixed Rate

Fixed rate mortgages are mortgages with an interest rate that is fixed for a set period of time. This generally tends to be between two and five years. The benefit of this is that, given you know the amount of your monthly instalments; it will make it easier to budget. Further, if interest rates increase you will save money as your interest rate is fixed at the lower rate.

It is also important to note, however, that conversely if the interest rates fall you will actually lose money and you could also have a penalty applied if you quit. When considering this type of mortgage it is important to check how long you will be tied into this agreement before you can switch.

Given the huge commitment that a mortgage is and all of the different options that are available to you it is important that you obtain advice that is tailored to your individual circumstances and needs. You can obtain this advice from a mortgage broker or search for a lender, such as Saffron Building Society, who will provide this advice as part of their service.


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