Mortgages are a specialist loan that is made by lenders such as banks and online lenders, and is designed to provide consumers with the means to purchase their own property. A mortgage is a long term commitment, and those taking out this type of finance need to ensure that they can comfortably afford the repayments in order to make sure that they do not put their property at risk, which could happen in the event that repayments are not made.
There are a variety of different mortgage loans available these days, and a great choice of lenders that offer this type of finance. You can get approved from lenders that also cater for those with a poor credit rating, enabling consumers that have a tarnished credit history to also enjoy the benefits of home ownership through a bad credit mortgage. Although property prices in the UK have rocketed over recent years, and those wishing to purchase a property have had to take on huge loans in order to cover the purchase price of the property, lenders have taken this into account and have adapted their loan packages to meet the needs of today’s homebuyers.
Many mortgage lenders today are able to offer loans based on far higher income multiples than in the past, which means that consumers can borrow more money in order to cover the cost of the property they wish to purchase. Your eligibility for a mortgage, and the amount that you will be able to borrow, will depend on a number of factors, such as your financial status, your income (or join income if applying with a partner), your outgoings, any other financial commitments such as loans and other credit, and your credit rating.
It is important to compare mortgage from a variety of lenders before you commit, as the interest rates, repayment periods, and terms can vary from one lender to another. The traditional term over which a mortgage is repaid is twenty five years, but due to the rising cost of properties in the UK, and the fact that consumers now have to take out a larger sum by way of a mortgage in order to purchase a property, many lenders have started to offer extended mortgage repayment periods, with some offering thirty five year mortgages, forty year mortgages, and sometimes even longer repayment periods.
Different types of mortgages
In the UK consumers can benefit from a range of different mortgage types, and you will find that there are mortgages available to suit a wide range of needs and circumstances. No matter which type of mortgage you decide to opt for, you should make sure that you compare the different deals available from a range of lenders, and that you do some careful calculations to ensure that you can afford the repayments on any secured loan such as a mortgage.
Mortgage varieties
The two main varieties of mortgage in the UK are the repayment (capital and interest) and the interest only mortgage:
Repayment mortgages: This is one of the most popular types of mortgage in the UK, and this type of mortgage ensures that you actually own the property once your mortgage loan has been repaid in full. With a repayment mortgage you make monthly repayments that cover part of the interest and part of the principal debt, so you will see the balance of your mortgage loan go down over time until it is fully repaid.
Interest only mortgage: The interest only mortgage is where you make monthly repayments that are typically lower than that on a repayment mortgage, but your repayments only cover the interest on the loan, and therefore you will not be paying off any of the principal balance. The idea with this type of mortgage is that you also invest in another product where your investments can grow, enabling you to pay off the principal balance in one go at the end of the mortgage term.
Popular mortgage types
There are a number of popular types of mortgages available in the UK, and this includes:
Variable rate mortgages: The variable rate mortgage is a loan with which the interest rate varies based on the interest rate set by the Bank of England. Based on the set interest rate, your mortgage interest rate could rise or fall, which means that your repayments could also rise or fall.
Fixed rate mortgage: The fixed rate mortgage is ideal for those that want to enjoy easier budgeting, as with this type or mortgage your loan is repaid at a fixed interest rate for a specified period of time, which means that your repayments will remain the same over this period no matter what happens with the Bank of England base rate. The downside is that if interest rates fall, you will still be paying at the higher rate.
Capped rate mortgages: With a capped rate mortgage you enjoy the combined benefits of a fixed and a variable rate. This is because a ceiling limit is placed on your interest rate, which means that if the Bank of England rates rise above the capped rate your interest rate won’t rise above it. However, if the interest rates fall, you still benefit from lower monthly repayments.
Discounted rate mortgages: This type of mortgage is based upon a variable interest rates, and is a loan where the base interest rate is discounted for a fixed period of time. This means that whatever the base interest rate is you will pay a certain percentage less than this based upon the discount offered by the lender.
Other mortgage types
You will also find other mortgage types available in the UK, with different lenders offering different products. Some of the other mortgages that are available in the UK include:
- Buy to let mortgages
- Base rate tracker mortgages
- Current account mortgages
- Flexible mortgages
- ISA mortgages
- 100% mortgages
Remember, a mortgage is a long term commitment and the security of your home rests upon your ability to keep up with repayments, so you should ensure that you take out the most appropriate mortgage loan for your needs and circumstances, and you should seek professional advice if you are not sure which of these mortgages is the right one for you.
