So what types of mortgages are out there for you?
Please Note: This information does not contain all of the details you need to choose a mortgage. Make sure that you read the separate Key Facts Illustration before you make a decision. The information provided by the calculator does not constitute a formal mortgage offer.
On 31 October 2004, the Financial Services Authority (FSA) took responsibility for the regulation on home loans. From the 1st April 2013, they were replaced by the Financial Conduct Authority. This affects the way mortgages are sold and aims to improve the standard of the advice you can expect to receive.
All mortgage advisers must be regulated by the FCA. You will get two documents when you receive your mortgage advice – the Initial Disclosure Document and the Key Facts Illustration. For more information, please ask your mortgage adviser.
*Not all forms of mortgage are regulated by the Financial Conduct Authority
For buyers who want certainty that their mortgage will be paid for at the end of the mortgage term. By repaying some of the interest you owe and some of the capital you’ve borrowed each month, at the end of the mortgage term, you will have paid back everything borrowed and you’ll own your home outright.
Payments go up and down in line with interest rates. Interest rates can change even though the base rate hasn’t moved and likewise, the base rate may fall but the SVR rate stays the same.
You will pay the fixed payments for a guaranteed period, there are usually a choice of terms typically 2, to 5 years. This rate will usually change to the standard variable rate (SVR) at the end of the set period. Normally, you will pay a fee for a fixed rate deal and if you change your mortgage product and or lender during the period in which you are tied, early repayment charges may apply.
Tracker mortgages move / track a nominated interest rate which is normally the Bank of England base rate. If the base rate goes up your mortgage rate will go up the same amount and it will come down when the base rate comes down.
An interest only mortgage means you pay only the interest each month and repay the capital at the end of the mortgage term from savings or investments. As there is a risk you may not have the funds to pay off the debt at the end of the term, lenders can insist that you demonstrate how you intend to repay the loan.
The interest rate is variable but will not go above an agreed limit for a guaranteed period. This will usually change to the standard variable rate at the end of the period. You may have to pay an early repayment charge for repaying the mortgage early and there is likely to be an arrangement fee.
A discounted mortgage is a reduction on the lenders standard variable rate (SVR) for a set period, typically 2 to 5 years. After the discount period ends, the rate will usually change to a standard variable rate. This is good for buyers who want a low rate but can afford to pay more if the rates go up. There is likely to be an arrangement fee payable to the lender and if you change your mortgage product and/or lender the period in which you are tied, early repayment charges may apply.
Flexible mortgages allow you to make over payments as well as making reduced payments or take holiday payments depending on certain conditions. You could pay off your mortgage early and you may still incur interest charges during a payment holiday period.
Some lenders offer incentives to taking out a mortgage with them, you will receive a cashback after completion. There is likely to be an arrangement fee payable to the lender and If you change your mortgage product and or lender during the period in which you are tied, early repayment charges may apply. This could particularly appeal to first time buyers or those who may need a lump sum to help with moving costs.
Offset mortgages are linked to a savings account and combine savings and mortgage together. You pay mortgage interest just on the difference between the two.
An example, a mortgage of £100,000 and savings of £5,000, the mortgage interest is calculated on £95,000 for that month.
The amount of interest you pay is reduced, however the mortgage rate is likely to be more expensive than on other deals. The more you offset, the quicker you’ll repay your mortgage.
When using your savings to reduce you mortgage interest you will not earn any interest on them. However, the good news is you won’t pay tax either which is great for higher rate taxpayers.
Buy to let mortgages are designed for people who wish to buy property to let out. Variable and fixed rates are generally available. Any income you get from rent must be more then you have to pay for the mortgage payment. There is no guarantee that the rental income will be enough to pay the mortgage or that it will be possible to arrange continuous letting of the property.