With so many different mortgage deals, it seems a bit like looking for a needle in a haystack to find the one that suits your situation. However, once you become familiar with the mortgage lingo and the different types of mortgage contracts available, it will be much easier for you to narrow down your options.
Explained Mortgage types:
All types of mortgages work the same way: borrow money to buy property for a certain period of time and pay interest on your debts.
The amount you pay each month depends not only on the amount you borrowed and the interest rate you pay but also on the term of the mortgage and whether you choose a single interest or mortgage payment.
There are two main types of mortgages
- Fixed-rate mortgages
- Variable-rate mortgages, including
- Mortgage tracker
- Mortgage rates with a discount rate
- Limited interest rate mortgages
As the name suggests, with a fixed-rate mortgage, you pay a fixed rate for a fixed term, usually between two and ten years, or sometimes longer. This can be reassuring, because your monthly mortgage payments are the same every month, whether or not market interest rates rise. The downside is that if interest rates fall, they will be blocked in your fixed-rate agreement. If you are paying off your mortgage and want to make a new deal before your fixed interest rate expires, you will usually have to pay the prepayment charge (ERC).
After the set period, you usually switch to your lender’s standard variable rate (SVR), which is probably more expensive. If your fixed price contract ends in the coming months, it’s a good idea to start shopping now.
Many lenders allow you to sign a new agreement several months in advance. This allows you to make changes at the end of your current interest rate and avoid switching to a higher SVR.
If you have an adjustable-rate mortgage, it means your monthly payments may go up or down over time. Most lenders have a standard variable interest rate (SVR). These are the fees charged at the end of a fixed, discounted or other mortgage contracts. There is usually no prepayment charge (ERC) if you want to change your lender’s SVR.