Types of Uk Mortgages
1. Repayment method
Basically guarantees that you will pay off the loan at
the end of its term.
2. Interest-only method
You pay the lender interest during the term, then pay the
outstanding capital back at the end of the term. To do this
you use an investment vehicle and the proceeds of this 'should'
pay off your loan. However you may end up with a surplus,
or a shortfall.
The potential for instability with the interest only method
of repayment is why the repayment method is by and large,
the most common mortgage deal.
Mortgage Interest Rate
The three main ways you can pay interest on your mortgage
Variable rate Mortgage
Where the rate can go up or down
Fixed rate Mortgage
Where the rate is fixed for a predetermined period
Capped Mortgage
Where the monthly payments have a maximum for a guaranteed
period.
Variable rate mortgage
Interest rate can go either up or down. Thus the interest
rate could stay constant and be the same for many months,
or it may change a number of times over just a few months.
Generally the standard variable rate (SVR) will be the same
as the Bank of England Base rate. If you wan to get an idea
of your repayment rate then you can monitor that rate as
an indicator to what your repayment rate would be. A Base
Rate tracker mortgage is basically when the interest charged
is linked to the Bank of England Base Rate. The rate will
generally be at a set level above the base rate (e.g. 1%)
for the term of the mortgage.
Fixed rate mortgage
You pay a certain level of monthly payments for an agreed
period. You can thus budget with increased confidence and
are protected against a rise in base rates. The fixed rate
period could be up to 25 years, or as low as 6 months [after
which you revert to the standard variable rate].
Capped mortgage
Is a combination of fixed and variable mortgage.
There is a max rate, over which you will not be charged
for a certain period. If the SVR falls below the defined
cap, your payable rate follows it downwards.
