Whether you're moving or purchasing your first home, we can offer advice and assist you in selecting the best mortgage option. We evaluate every option offered by a wide range of different mortgage banks and building societies. You can apply with confidence knowing that you're getting a fair deal from a reputable lender.
The biggest difference is the approach. With a bank, they still give you advice, but only on their own products – their priority is to make sure that you tick all the boxes for their mortgages. When you approach a mortgage broker, it’s the other way around. We find the right lender or products for you. We start by getting to know you and your preferences and your plans. Then, rather than trying to push you into a box that you might not fit or might not necessarily be the most competitive for you, we take your circumstances and find the right lender for you from our panel of lenders. Every client is different and that’s what I really love about this job. Every time the phone rings, you’re talking to somebody that’s in a different situation.
Most types of mortgage fall into the category of a repayment mortgage, apart from interest-only mortgages. Below we’ve taken a closer look at what each one is and how they differ.
A repayment mortgage is a type of mortgage where you repay some of the capital amount you’ve borrowed, as well as some of the interest on the loan. The aim is to pay back the original loan amount plus interest over the term agreed when you take out the mortgage, allowing you to build equity over time and eventually own your home outright. If you move during the duration of the mortgage, you have the option to repay the original loan and then take out another mortgage, or transfer your current deal to your new home — a process known as porting your mortgage. Almost every type of mortgage is a repayment mortgage. The only exception is an interest-only mortgage, which we’ll cover next. Who is this type of mortgage for? A homebuyer who wants to build up equity in their home and own the property at the end of the repayment period.
An interest-only mortgage requires you to pay the interest on the mortgage amount each month, but not any repayment towards the capital you’ve borrowed. Instead, the loan amount is paid back at the end of the mortgage period, so you will need to make sure that you have the means to repay the whole debt. This differs from a repayment loan, where the amount is paid back incrementally alongside the interest. The advantage of an interest-only mortgage is that your monthly repayments will be much lower than any other mortgage product. However, you will need to make sure that you’ve accumulated enough funds to repay at the end of the term, or you may have to sell the property to cover what you owe. And, as you’ll be paying back interest on the whole loan, rather than a decreasing amount, an interest-only deal will cost more than a repayment mortgage in the long run.
Who is this type of mortgage for?A buyer who wants to benefit from lower payments each month but is sure that they will have enough funds to pay off the mortgage when it is due.
Variable-rate mortgages and fixed-rate mortgages are both types of repayment mortgage, but they differ in how the interest rate is calculated. Let’s look at the main differences between the two and who may benefit from each product.
With a fixed-rate mortgage, the interest rate is fixed for a set amount of time and won’t be affected by Bank of England base rate rises or fluctuations in the market. This fixed interest rate is often referred to as the introductory rate. Once you’ve taken out a fixed-rate mortgage, you will be locked into the introductory rate for a set period of time, and if you leave you’ll be subject to exit fees.
Typically, the fixed rate period (also known as the initial rate period) is the first two, three, or five years of the term. During this time, you will know exactly how much you will be paying each month, and this won’t change until the fixed period has expired, making it easier to budget. When you take out an interest-only mortgage, you will effectively be locking in your mortgage interest rate, which can be very handy if you think that the Bank of England’s base rate will be increasing soon. The certainty of fixed-rate mortgages makes them very appealing for first-time buyers who are looking to budget for the first few years in their new home or homeowners who want to be certain what they’re paying back each month. The downside is, once you’re locked into an initial term, you’ll find it difficult to switch again due to a hefty penalty that most lenders will attach to their products. In addition, you won’t be able to benefit from falls in interest rates should they occur during your term, but you’ll also be protected from any hikes in the rates. Once you’ve reached the end of the fixed-rate period, you’ll be switched to your lender’s standard variable rate, which will likely be higher. At this point, many people choose to remortgage in order to switch to a better deal — you can find out more about this process and how it could benefit you in our remortgaging guide. Who is this type of mortgage for?A fixed-rate mortgage is a great choice for someone looking for security and the ability to accurately budget at the beginning of their mortgage, such as a first-time buyer. They’re also suitable for homeowners who want to lock in a good mortgage rate, especially if they believe the base rate is due to rise at some point.
A variable rate mortgage is a product in which the interest rate can shift at any time, either to a higher or lower amount. Unlike a fixed-rate mortgage, there is no period where the rate is locked in, and how much you pay each month is subject to change. This type of mortgage is affected by the Bank of England’s base interest rate, as well as other factors. Also, there is more than one type of variable rate mortgage to consider. For each one, the interest rate you pay is calculated slightly differently, giving each one advantages and disadvantages depending on what your needs are. Below we’ve listed the main types of variable rate mortgages: standard variable rate,tracker,discount, and capped-rate.
A standard variable rate (SVR) mortgage has an interest rate that is set by the lender. This rate is not directly linked to the Bank of England, though in the majority of cases it is the primary influence on whether it increases or decreases.
A lender can increase or decrease the mortgage rate that you are paying on a month to month basis, so you could end up paying more or less depending on their decision. This makes it difficult to budget for the future. On the other hand, being on an SVR allows you to have more freedom: you can overpay or leave your mortgage without fear of high penalties for doing so.
SVR is also the rate that a lender will transfer you to once your fixed-rate dealhas expired, which means you will usually end up paying a higher interest rate if you don’t remortgage in time. Check out our remortgaging advice service if you need guidance.
Who is this type of mortgage for?Homeowners who want the freedom to switch mortgage products at any time or if you can see yourself moving home in the future.
A tracker mortgage is a type of mortgage deal where the interest rate is equivalent to the Bank of England base interest rate, plus a few percentage points set by your lender. For example, if the base rate is 0.5%, you might pay that plus 3% for a rate of 3.5%. This means that when the base rate falls, your mortgage rate will ‘track’ it downwards and you will pay less. However, the same happens when the base rate rises, so you could end up paying a higher amount each month. Most tracker mortgages are offered with introductory deals, where you’ll be on the tracker rate for a set period of years, though there are some ‘lifetime’ deals that last for the duration. Lenders tend to transfer you to their SVR once the introductory deal is finished. In addition, some lenders will set a minimum rate for you to pay, no matter how much the base rate drops. Who is this type of mortgage for? Those that are confident that the base rate is set to fall but can comfortably pay more if the rate increases again over time.
A discount mortgage sees you paying a reduced version of your lender’s standard variable rate. The amount of discount is fixed, and the reduction is applied whether the SVR is increased or decreased by the lender. For instance, if the SVR was set at 4.5% and your deal applied a fixed 1.5% discount, you would only pay a 3% mortgage rate. If the lender decreased the SVR to 4%, your rate would be reduced to 2.5%.
The majority of discount mortgages are only available for an introductory term (much like a tracker mortgage), after which you’ll be switched to the lender’s SVR. Many deals are also stepped, so you will get access to the best discount for a set term, before switching to a lesser discount for the remainder of the introductory period. Additionally, some discount mortgages are capped so that there is a rate they can’t fall below or increase above. Who is this type of mortgage for? People, such as first-time buyers, looking for a cheaper rate during an introductory period, who can accommodate paying more should the SVR increase.
A capped-rate mortgage is a type of variable rate mortgage that will not rise above a certain rate, also known as a cap. These deals are most commonly available as SVR or tracker mortgages, which follow the standard model of these types but with a built-in cap. In the current climate, capped rates are quite rare for lenders to offer. The advantage of a capped-rate mortgage is that you’ll have the peace of mind that your repayments will never rise to a level you can’t afford. However, while some deals have no minimum rate, a lot of capped-rate mortgages also have something known as a collar, which is another cap that prevents your rate falling below a certain level. So, on one hand you may be protected from high rates, but there’s a possibility you won’t benefit from a low rate, either.
Who is this type of mortgage for? Homeowners who want to be protected from rising rates and are willing to forgo benefitting from a potential fall in mortgage rates.
If you’ve considered variable rate and fixed-rate mortgages, you may find yourself wondering whether there are any other types that may suit your financial situation. There are a number of mortgages that have specialised terms that are also worth considering.
An offset mortgage allows you to link your mortgage and your savings together to reduce the amount of interest you are charged. It works by offsetting the value of your savings account against how much you borrowed for your mortgage loan, so that you are only charged interest on the amount left over. Because your mortgage rate is applied to a reduced figure, the amount of interest you pay each month will be lower. For example, if you have £15,000 in savings and a £100,000 mortgage, you would only pay interest on £85,000. At an interest rate of 3%, that means you’d be paying £2,550 in interest per annum, as opposed to £3,000. Many lenders will offer you the choice of either reducing your monthly payments over the same loan duration or keeping the same level of payments and paying of your loan over a shorter duration. It should also be noted that when you offset your savings, you won’t be able to earn interest on them. However, you don’t pay tax on them either, which can be beneficial if you are in a high tax bracket.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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