Types of Mortgages

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Mortgages

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

The Financial Conduct Authority does not regulate most forms of buy to let mortgage.

Fixed rate Mortgage

With fixed rate mortgages, the borrower can lock into a fixed repayment cost each month over an agreed period of time and know that, irrespective of changing rates of interest, monthly payments will not be affected. Fixed periods can vary in length with two to five years being the most popular and most readily available. At the end of the fixed rate term the interest rate usually reverts to the lender’s prevailing variable mortgage rate.

TRACKER MORTGAGE

As the name suggests, the monthly repayment goes up and down in line with the Bank Of England’s base rate. When the loan is set up customers are advised of the appropriate ‘margin’ to be applied to the loan. With this scheme you are guaranteed that a change in base rate will be reflected in the mortgage rate payable. This means that you cannot predict the monthly cost of the mortgage from one year to the next. This can cause budgeting problems in a period of increasing interest rates, on the other hand, when interest rates fall, there is the guarantee that your mortgage rate will by the same amount as the Bank of England base rate.

DISCOUNT RATE MORTGAGE

Many providers offer an initial discounted rate. This takes the form of a limited period reduction in the normal variable interest rate, for example say, 1% for a year. This means that whatever the variable rate is during that initial year, the borrower will pay 1% less, thus making a saving. At the end of the discount period the rate reverts to the lender’s prevailing variable mortgage rate.

FLEXIBLE MORTGAGE

A truly flexible mortgage allows you to make overpayments and underpayments, borrow back overpayments and, if you have built up enough credit, to take payment holidays. Another important feature is that interest is calculated monthly/daily, not annually in arrears, so overpayments have an immediate impact on what interest you pay. You can, therefore, significantly reduce the term of the loan and save thousands of pounds in interest payment if you are able to make additional payments during the term of the mortgage. A flexible mortgage can be ideal for people with inconsistent income, like self-employed and since mortgage deals come with cheque books and debit cards your mortgage could be used as a bank account.

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Why Spot On Mortgages to this?

Other types of mortgages are available such as Variable, Cashback, Capped, Collared & LIBOR.