Mortgage Types and Jargon Busting
Different Types of Mortgage – Jargon Busting
Different Mortgage Types
Fixed Rate Mortgage
A fixed rate is where a lender will offer you an interest rate which is fixed for a given amount of time. Fixed rates can be exceptionally useful when it comes to budgeting and planning your finances. When a fixed rate term comes to an end, your lender will review your situation and discuss what deals are available to you.
Variable Rate Mortgage
A rate when the lender will choose their Standard Variable interest rate and will move it up and down at their wish.
‘Tracker rates’ refer to interest rates which are tracking a base rate. A tracker rate traditionally follows the Bank of England Base Rate and lenders will offer a percentage more of the rate. As the rate moves up and down so will your tracker rate, thus your monthly repayments will move too.
An amount of discount off of your Standard Variable Rate. This will sometimes be offered to you for an amount of time by your lender. This is called a discounted rate. They are usually fixed and short-term.
Offsetting your mortgage is a good option for you if you already have some savings to your name. You effectively will have two accounts with your bank, both linked to the mortgage – One account will be a savings account. The balance in that savings account will offset your mortgage balance.
Your cash savings are used to ‘offset’ or reduce the amount of interest on your mortgage balance. As an example, a £150,000 mortgage alongside £50,000 in savings, you’re only being charged interest on one hundred thousand pounds for your mortgage because the savings are offsetting.
Generally, these mortgages are charged interest on a daily rate basis because you will be moving your money in and out of accounts at various times. The more money you save, the less interest you are paying on your mortgage. You can also dip into your savings when you would like but bear in mind this will affect the offsetting balance.
There are typically two types of mortgage repayments, capital and interest only.
Each month you are repaying some of the original loan you borrowed and interest. As an example, if you had a 25-year repayment mortgage, you are guaranteed that as long as you make the mortgage repayments on time that there will be no balance left to pay at the end of the mortgage term.
Interest Only Repayment
An interest-only mortgage means that you will only be paying the interest of the loan monthly rather than the loan itself. This means your monthly repayments will be lower, but the original amount you borrowed will need to be paid at the end of the mortgage term.
Features and Mortgages
Some mortgages will offer features to make them more appealing to a borrower. Below are a few examples of some of the incentives that may be offered or features the lender will advertise.
A flexible mortgage can mean different things between different lenders. Essentially it means the mortgage has features that can be offered compared to a basic mortgage. This can be that you can make repayments some months, it could be that you are allowed to move your mortgage to another property at no extra cost, it could even include the offset option.
A lender will give you a mortgage offer alongside a cash incentive, the amount will vary between lenders. They can be useful for using the cashback to pay off any fees you may have incurred in obtaining your mortgage, as an example, moving fees.
An overpayment is when you pay more than the amount required off of your mortgage balance in a given amount of time. Over-payments on your mortgage will typically come at a cost, but there are lenders out there who will offer flexible mortgages with free over-payment options available.
Given the current circumstances with COVID-19 there are lenders who are offering payment breaks off of your mortgage. It doesn’t mean that you will have an amount taken off of the loan you took out – you will need to pay it still. It offers space to put your finances towards other things such as covering your income if you have been made redundant.
Why Should I Speak to a Mortgage Broker?
A mortgage broker has expert knowledge when it comes to the mortgage market. They will know lenders well and sometimes have access to exclusive deals due to building relationships with them.
Brokers can find you the right mortgage lender and help with the whole mortgage application. They will be able to help you budget and plan before you even begin to search for a mortgage.
Brokers look into your personal situation and tailor their advice specifically for your needs. If you seek the advice of an expert and do the whole process correctly, you will be improving your chances of getting the property you long for.
Will It Cost me to Speak to a Mortgage Broker?
We do not charge for general enquiries about mortgages. We understand that you will want to know some information before choosing a broker too.
A broker fee will usually be incurred once you have received an agreement in principle from a lender and are ready to have your full mortgage application submitted to the lender. Your mortgage broker can then get to work on processing the mortgage and sorting all of the legal documentation for you.