Your home may be repossessed if you do not keep up repayments on your mortgage
There are mortgages out there to suit every type of homeowner. While it is great to have a choice, the sheer variety of mortgage types on the market means that choosing the right mortgage can be a confusing business. Our useful guide will give the information you need to have an understanding of the basics.
I am fully qualified adviser with access to the whole of the mortgage market for first charge mortgages and am happy to discuss these in much more detail with you and to advise you on the specifics of your own individual circumstances.
When securing a mortgage, it is vitally important that you understand your interest options.
When it comes to interest options, mortgages come in all shapes and sizes. It is important to understand the differences when it comes to choosing the right deal for you. The main mortgage product types offered by lenders are:
When you take out this type of mortgage, the interest rate is fixed – typically for a term between one and three years. This means that, unless you make changes to your mortgage such as borrowing more money or making a part repayment, your monthly payments will not change until the deal comes to an end. Fixed rate deals may be slightly more expensive than other options, but you have the reassurance of knowing that your payments will not change for the fixed period, even if market conditions change and interest rates rise.
On a capped mortgage, the interest rate – and therefore your monthly payment – is variable, but is guaranteed not to rise above the agreed rate cap for the term of the product. This means your payments may go up or down, but will never exceed a certain maximum.
Tracker rates are usually linked to the Bank of England base rate, and your mortgage rate (and monthly payments) will increase or decrease whenever the base rate changes. Be aware that although the Bank of England rate has been consistently low for the past few years, this may not always be the case. Also note that some lenders mortgages to their own bank’s base rate which can change whenever they choose. Trakker Mortgages are basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate most commonly the rate that is tracked is the Bank of England Base Rate
Tracker rates do not match the rates they track, but are at a ‘margin’ above that rate. Introductory offers tend to have a lower margin, for example Base Rate plus 1.00%. So, with base rate at 0.5%, the rate paid would be 1.50%. Longer-term tracker mortgages would have a larger margin, for example base rate plus 3.5%.Tracker rates can be for an introductory period (typically anything from one year to five years) or can be a lifetime tracker, which means that you’ll be on it for the whole term of your mortgage.
If you’re on an introductory tracker rate, your mortgage will usually go onto a Standard Variable Rate or another tracker rate (with a higher margin) at the end of the initial term.
Some mortgage lenders also put you on to a tracker rate once you’ve finished an introductory fixed mortgage deal.
Discount mortgages are a type of variable-rate mortgage. They work by offering a discount based on how low the interest rate is below a lender’s standard variable rate or SVR for an agreed amount of time. A discount mortgage is calculated with the discount rate being subtracted from the lenders SVR, thus resulting in the rate of pay.
In terms of the benefits, a discount mortgage ensures for that a buyers rate will always remain below a lender’s SVR for the length of the deal. In certain economic circumstances, a discount mortgage can ensure a very low rate of interest.
As a drawback, discount mortgages certainly do not offer the stability of a fixed-rate mortgage, as buyers have no control over what the lender’s SVR is at any certain time. For those on a tight budget, needing repayments to stay the same from one month to the next, it may make more sense to choose a fixed-rate mortgage.
It is also worth considering, that attempting to pull out of a discount before the end of a deal period may incur early repayment charges. At Advance Mortgages I can provide professional advice on all types of mortgages, including specialist lending such as Commercial mortgages, Adverse credit and Buy to let mortgages
Other mortgage types are also available, including cashback mortgages, and offset mortgages that allow you to reduce the interest charged by offsetting the mortgage debt against balances in other accounts.
Help to Buy
Help to buy mortgages incorporate four separate schemes announced in the 2013 budget, intended by the Government to help first time buyers and home movers afford to buy new homes in the current economic climate and housing market. The four initiatives that make up Help to buy are equity loans, shared ownership, NewBuy and the mortgage guarantee.
Equity loans are only available in England, and are open to people buying new-build properties. If you have a 5% deposit available, the government will top up your deposit with an equity loan of up to 20% of the property value. No interest is charged on the loan for the first five years, after which a percentage fee is charged each year. You can either repay the loan in stages (in minimum 10% increments) at any time, or pay it off when you sell the property.
Shared ownership schemes have existed in various forms for years, and under the current Help to Buy scheme are available to most first time buyers with a household income under £60,000. Shared ownership allows you to take out a mortgage for a percentage of the property (between 25% and 75%) and pay rent to the housing association for the remaining portion of the property, which they own. Alternative schemes are available for people over 55 or who have long-term disabilities.
New Buy makes 5% deposit mortgages from approved lenders available to home movers and first time buyers purchasing newly built or developed properties priced under £500,000 from specific UK house builders, including major developers like Taylor Wimpey, Persimmon and Barratt Homes.
Help to Buy Mortgage Guarantee
The mortgage guarantee scheme is also designed to make 5% deposit mortgages more widely available to home buyers. In this case the “guarantee” is actually between the government and the lenders, reducing the lender’s exposure to risk and permitting higher lending limits to the public. Both new-build and older properties valued under £600,000 are eligible.
The various Help to buy schemes represent a real step forward in promoting affordable home ownership, however each of the schemes has different qualifying criteria and it’s a good idea to speak to myself so I can help you understand the ins and outs. At Just Mortgage Brokers we can provide expert, impartial advice on home mover, first time buyers mortgages and remortgages.
A discount mortgage can help you find a lower cost option and can on occasion help you secure a low rate of interest.