Mortgages are type of loans that are taken out with the specific purpose of buying a home. There are various kinds of mortgage that you can apply for here and your repayment options may also be different depending on the lender you use and the deal you choose.
In basic terms there are two types of mortgage to choose from:
1. Repayment mortgages - with a repayment mortgage your monthly repayment is put towards paying back both the money that you borrowed in the first place and the interest that will be charged on your borrowing. So, when you have made your final payment you will own your home and you will not owe your lender any more money.
2. Interest only mortgages - with these mortgages your monthly repayment only goes to pay back the interest that will be charged on your borrowing and it will not repay the original sum that you borrowed. Here, when you have made your last repayment, you will also need to repay the outstanding balance to clear your mortgage. For this reason most people who take out this kind of mortgage will set up some kind of investment or savings product at the same time that can make this payment.
The type of mortgage that you apply for may also be dictated by your circumstances and the type of property you want to buy. Most financial institutions will have a range of specialist mortgages that you can choose from here. These include:
- First time buyer mortgages
- Buy to let mortgages
- Mortgages to buy properties abroad
- Self certification mortgages (for people who are self-employed etc)
You will also need to decide if you want a mortgage deal in place when you take out a mortgage. These deals can be set up to last for a set period of time or for the life of the mortgage. Options here include:
- Variable rates - here you take on no deal but simply pay interest at the standard rate of the lender.
- Fixed rates - here the interest rate on your mortgage is fixed so you will know exactly what your payment will be every month.
- Capped rates - here you will have a cap set on your interest rate so that you know that it will not go above a certain percentage.
- Tracker rates - tracker rates are set up to follow centralised interest rates (such as the Bank of England rate).
- Discounted rates - these deals will give you a discount on the interest rates you pay for the time that your deal lasts.