In the beginning of your mortgage process, you will find a lot of the information you come across to be very educational, as you quickly find out that there are many different mortgage options available. There are mortgages for First-Time Buyers in Nottingham, mortgages for people who are Moving Home in Nottingham, even Remortgage Deals for when you reach the end of your term. All that and more are accessible in the world of mortgages, so you need to find the one that’s most appropriate for you.
Below we have compiled a list of the most popular types of mortgages that are available on the mortgage market. If you have any questions regarding one of these mortgage options, please feel free to Get in Touch and speak with a trusted and experienced Mortgage Advisor in Nottingham.
Feel free to use the points below and jump to a different mortgages type;
The purpose of a fixed-rate mortgage means that your mortgage payments won’t deviate from their current course for the duration of your term. You are able to personally set the length of which you want to fix your payments for, with this usually being 2, 3 or 5 years or longer for most home buyers and owners.
Regardless of any potential changes to inflation, interest rates or the economy, you know that your mortgage payment (usually your biggest outgoing) will remain consistent for you.
A tracker mortgage is a little different, as this means that your interest rate will follow the Bank of England’s base rate. To simplify this, it means that the lender that you are with, nor you yourself, actually sets the rate themselves.
Your repayments will be at a percentage above the Bank of England base rate. An example of this, is if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying back a rate of 2%.
These are the usual mortgages you hear of, the ‘normal’ ones if you will, and are officially known as Repayment Mortgages, wherein each month you pay a combination of capital and interest. So long as you keep your payments going for the full length of the mortgage term, you are pretty much guaranteed to pay off the mortgage balance by the end, with the property becoming yours.
This is often perceived to be the most risk-free way to pay your capital back to the mortgage lender. Early on in your mortgage, it is mainly the interest that you are paying and your balance will reduce at a slower rate, especially if you have taken out a 25, 30 or 35-year term.
This all changes in the later years of your mortgage, where your payments are paying off more capital than interest and the balance will come down at a quicker rate.
Whilst a large portion of Buy-to-Let Mortgages are set up on an interest-only basis, it is a lot harder when trying to get a residential property on an interest-only basis.
Nowadays, you’ll find that lenders won’t often offer an interest-only product, though in certain circumstances it may still be appropriate. These can include downsizing your property when you are older or have other investments what you will use to pay back the capital.
Lenders are known to be very strict when it comes to offering these products now and the loan to values are a lot lower than they were in previous years.
Offset Mortgages first became popular over in Australia, and are a flexible type of Mortgage Arrangement. The interest rates can be slightly higher, as there’s a little more involved with these than other mortgage types. Offset Mortgages allow you to potentially overpay your mortgage, underpay your mortgage (something you really shouldn’t do) or pay off a lump sum.
What attracts customers to this type of mortgage, is that the lender you end up going with will open up a savings account to run alongside your main mortgage account. As an example, let’s imagine that you take out a £100,000 mortgage but in your savings, you already have £20,000. You can then put that £20,000 into your new savings account and only pay interest on the remaining about which would be £80,000.
If you keep your payments up as normal per month, then you may be able to pay off the mortgage earlier than you could’ve and with less interest too.
Capped Rate Mortgages are very similar to Fixed-Rate mortgages. You will have a maximum amount that a customer will have in repayments each month with a maximum on the interest rate. On that basis, if you’re capped at, for example, 5%, you’ll never have your rate go higher than that 5%.
These can be very beneficial if interest rates take a dive. An example of this, is if the rates dropped to 4%, 3% or 2%, then your mortgage will do the same.
Flexible mortgages present you the option to underpay and overpay by any amount that you wish to. Underpayments are only allowed if you’ve overpaid first and have confirmed an agreement with the mortgage lender to do this. Once again, we highly suggest not underpaying your mortgage.
Overpayments can be very helpful though, as you could end up paying off the mortgage early and with a massive amount less with interest. Mortgage flexibility is normally a feature of Offset Mortgages, which we mentioned earlier on in this post.