A mortgage is a loan that is secured on a property, and is also known as a home loan. A mortgage is usually acquired from a lender to buy residential property. However it is becoming increasingly popular for existing homeowners to switch mortgage lenders without moving home - this is known as remortgaging.
Mortgages are long term secured loans usually repaid over a fixed period known as a mortgage term. Not all mortgages run over a fixed term. Flexible mortgages allow the borrower to pay the mortgage off early or in some cases late. With a flexible mortgage the borrower may also be able to make early payments, take payment holidays and even borrow back some of the home loan. This form of mortgage is often beneficial to those whose income fluctuates from month to month, or those who have varying expenses and may need to reduce their mortgage outgoings in order to cover these.
The majority of borrowers will not require such features, and so would be better off with a more standard form of mortgage, such as an interest only or repayment mortgage. Within these types there are further options of fixed rate, tracker and capped rate variations, as well as deals with special introductory rates. The options to the borrower are numerous and can be confusing at times, which is where we can help.
Below are the types of mortgages available:
Standard Variable Rate
This is the
rate of interest a lender charges on its basic variable rate
mortgages. This means that when the lender changes its standard
variable rate, either up or down, the borrowers' payments move
where the rate of interest you pay is the same for a fixed period,
for example three years, regardless of where base rates move in the
meantime. At the end of the fixed period, the lender's standard
variable rate will normally apply.
a fixed 'cap', an upper rate above which the rate of interest will
not rise. However, below that level, the rate will fluctuate in line
with the lender's standard variable rate.
the lender's standard variable rate is reduced by a set percentage.
If the standard variable rate changes so will the discounted rate,
but it will remain the same percentage below the main rate - 2 per
cent is typical. Discounted rates usually last for a fixed period,
say one or two years.
Interest is at
a set margin above the Bank of England's base rate and changes as
the base rate changes. Whenever base rates are cut, your mortgage
payments fall : if it rises, your payments go up, irrespective of
what happens to the lender's standard variable rate.
With this type
of mortgage, the borrower receives a cash lump sum on completion of
the mortgage, which will either be a percentage of the mortgage loan
or a set amount. In return, you are tied into the mortgage for
several years at the lender's standard variable rate.
100 Per Cent
advance the full purchase price of your property. Repayments are
usually somewhat higher than for 90 or 95 per cent mortgages and the
borrower will also have to pay a fee for not providing a