Types Of Mortgage

If you are looking for a UK mortgage, then choice is one thing you won’t be short of. Today there are thousands of mortgages available from a variety of mortgage lenders, ranging from high street mortgage lenders to exclusive online mortgage lenders, and each mortgage lender has several different mortgages on offer.

By taking a closer look at this wide choice of mortgages, you will discover that there are only a few different types of mortgage, however each mortgage will differ from mortgage lender to mortgage lender in terms of the rates available, the conditions of the mortgage loan and the incentives on offer. Talking this through with a UK mortgage broker will help you to whittle the choice down to the ideal mortgage to suit your circumstances.

In this section we’ll take a general look at the types of mortgages on offer, explaining what they are and why they might interest you, to help you understand the mortgage basics before you go and see your chosen mortgage broker.

Fixed rate mortgage

A fixed rate mortgage is one of the most straightforward mortgages on offer from mortgage lenders. Put simply, a fixed rate mortgage is a mortgage that comes with a fixed rate of interest. Ultimately a fixed rate mortgage means that you pay the same rate of interest for as long as you owe money on your mortgage, however in the UK mortgage market there are only a few mortgage products out there that will offer a fixed rate for longer than around five years. The normal term for a fixed rate mortgage tends to be two years. Although fixed rate mortgages are changing and more long term fixed rate mortgages are being introduced, it is likely you will need the services of a mortgage broker to find long term fixed rate mortgage deals of 10 years or more.

Most fixed rate mortgage deals in the UK last for two to five years, at which point the rate usually reverts to the mortgage lender’s standard variable rate mortgage. However what this does mean is that you will have two to five years of stable mortgage payments. With a fixed rate mortgage you will pay the fixed rate of interest regardless of what happens to interest rates generally. The Bank of England decides whether interest rates go up or down, however while you are on a fixed rate mortgage these changes will not affect you, so if the interest rate goes up, your payments will not go up and if the interest rate goes down then your payments will not be reduced.

A fixed rate mortgage is a good option for people who like the security of fixed monthly mortgage payments so that they can budget and plan ahead. It may also be a good option if you plan to stay in your home for several years. However two things to remember when considering a fixed rate mortgage is that if the mortgage rate goes down you will not be able to take advantage of this, and you should also check what the early redemption fees are. An early redemption fee is the money you have to pay your mortgage lender if you pay off your mortgage early. Quite often with fixed rate mortgage loans in the UK this fee is significant so you should be aware.

Other fixed rate mortgage costs you should be aware of include the arrangement fees (the cost of setting up the mortgage in the first place) and the Higher Lending Charge (HLC). A HLC is what used to be known as the Mortgage Indemnity Guarantee (MIG) and usually comes into play when the amount you borrow exceeds a certain percentage of the value of the property.

This article is only a general guide to fixed rate mortgages, so you should always seek professional advice before selecting a mortgage. To find a local mortgage broker, why not use our mortgage broker locator.

Variable Rate Mortgage

A variable rate mortgage is a mortgage where the rate of interest you pay varies throughout the term of the loan. In terms of a UK mortgage, the amount of interest you pay on your mortgage will be linked to the Bank of England base rate, so when this moves up or down then it is likely that the rate of interest you pay on your mortgage, and therefore your monthly mortgage repayments, will do something similar.

An important point to remember is that the Bank of England base rate is unlikely to be the rate of interest you pay on your mortgage. Although there are a variety of variable rate mortgages, the main one for most mortgage lenders is a standard variable rate mortgage. This mortgage is based on a rate of interest set by the mortgage lender, which is often not directly related to the Bank of England base rate. It will however be higher than the Bank of England base rate and will almost certainly go up when the Bank of England base rate goes up and may come down when the Bank of England base rate comes down.

There are a number of variations on the variable rate mortgage theme. One of the easiest to understand is a tracker mortgage. A tracker mortgage, sometimes known as a base rate tracker mortgage – mirrors what the Bank of England base rate does at a defined percentage rate above the Bank of England base rate i.e. 1%. This means that if the base rate is 5% your tracker mortgage interest rate will be 6%. If the rate then moves up to 5.25% then your tracker mortgage interest rate will change to 6.25% and if it goes down to 4.75% then your tracker mortgage interest rate will be 5.75%.

Another variation on the variable rate mortgage is the capped rate mortgage. A capped rate mortgage also tracks the Bank of England base rate but has an upper limit. This means that if interest rates rise above a certain level, your payments will not rise any further. However, if interest rates go down, you can take advantage of any savings.

Before making a decision on the type of variable rate mortgage you would like, you should seek professional advice from a mortgage broker or mortgage advisor. This article is only a general guide to variable rate mortgages so you are better informed once you find a local mortgage broker.

Buy To Let Mortgage

Whether you want to become a landlord or would like to invest your money in property, then a buy to let mortgage is something you will probably need to consider. Unless you have the money to buy a second property outright, you will need some sort of mortgage loan from a mortgage lender.

There are some significant differences between a typical homeowner mortgage and a buy to let mortgage, the most obvious being that you cannot get a buy to let mortgage for a house or flat that you are living in. It is also important to remember that most homeowner mortgages do not allow a property to be rented out if the homeowner does not live there, so if you are planning on renting out a house you do not live in then you will not be able to use a standard mortgage. It is also worth remembering that your buy to let mortgage options may be reduced if you do not already have your own residential property.

Another way in which a buy to let mortgage differs from a traditional mortgage is the terms on which the mortgage loan offer is based. With a buy to let mortgage, mortgage lenders will be looking at the potential rental income rather than the applicant’s income. Ideally the rental income needs to be 130% of the mortgage repayment. If rental income is not your main priority then an independent mortgage broker may be able to find you a buy to let mortgage that has more flexible terms.

Before you apply for a buy to let mortgage it is important that you do your research, as the mortgage lender will need to know the potential rental income. You will also probably want to know the types of property that are popular in your chosen area so you know that your investment will be a good one.

In terms of the types of buy to let mortgage available, if you go to a mortgage broker you will find that you do still have a wide choice. Initially you need to decide if you want a repayment buy to let mortgage, where you pay off the interest of the mortgage loan and the original amount you need to borrow, so at the end of the mortgage term you will have paid off everything you owe the mortgage lender. Alternatively, you could opt for an interest only buy to let mortgage which should keep your mortgage payments down, but at the end of the mortgage term you will have only paid off the interest on the mortgage loan and at the end of the mortgage term you will still owe the mortgage lender the original amount you borrowed.

Once you have decided whether you want a repayment buy to let mortgage or an interest only buy to let mortgage, you will then have to decide on which specific mortgage will be right for you. A UK independent mortgage broker should be able to help you with this, talking you through your different mortgage options, for example a tracker mortgage, a fixed rate mortgage and so on. However, whichever type of mortgage you choose you are likely to need a minimum of 15% deposit to get the best range of mortgage deals.

Before you decide on a buy to let mortgage, you should always seek professional advice from a mortgage professional. This article is only a general guide to buy to let mortgages, so you are better informed once you find a local mortgage broker.

Self Certified Mortgage

Most UK mortgage lenders base the amount they will lend borrowers for a mortgage on their income. In fact most mortgage loans, regardless of the type, are based on a multiple of your income. So when proving your income is difficult to do, you are likely to find it hard to get a mortgage in the traditional manner, which is where self certified mortgages come in.

A self certified mortgage is offered on the basis of your credit rating, rather than on proven income, and over the years has helped many self-employed people get a mortgage. Probably in recognition of this fact, a self certified mortgage is often called a self-employed mortgage. However, just because it is sometimes known as a self-employed mortgage doesn’t mean it is only used by the self-employed. A self certified mortgage is also useful for those with several sources of income, and for those who work on a contract-by-contract basis.

Over the past few years self certified mortgages have become increasing popular for the UK’s self-employed sole traders as well as several other members of the work force, and now because of this, there are self-certified mortgages available from high street lenders. However, for the widest choice of self-certified loans it is best to go to a mortgage broker, who can assess your individual situation and find you the ideal mortgage. Mortgage brokers also have exclusive access to self certified mortgages that you would not be able to find if you looked for a mortgage on your own.

When you go and visit your mortgage broker or potential mortgage company, it is unlikely that they will simply accept your word about your income, so although you will not have to produce pay slips, you may have to show your bank statements for a certain period of time. You may even need to get an accountant’s certificate which states that your income will be able to cover the mortgage repayments. Ultimately the credit check will have a significant bearing on whether you can get a self certified mortgage, but in addition to this, the more solid evidence you are able to show to prove your income, the better your chances are of getting a self certified mortgage.

Another thing to bear in mind is that for mortgage lenders, mortgages for the self-employed such as a self certified mortgage, pose a bigger risk and as a result the rate of interest you pay may not be as competitive as a traditional mortgage. In addition to this, mortgage lenders may not offer you as big a share of the house value. Taking the traditional mortgage route, where you can show your mortgage lender that you have a steady income, will enable you to borrow 100% of the house price. However, with self certified mortgages you are likely to need to find 10% of the purchase price as a deposit on your mortgage, because the maximum loan offered by most self certified mortgage lenders is only 90% of the purchase price. In fact, many mortgage lenders offering self certified mortgages will only offer you 75% of the house value.

Before you decide on a self certified mortgage you should always seek professional advice from a mortgage professional. This article is only a general guide to self certified mortgages so you are better informed once you find a local mortgage broker.

Commercial Mortgage

Owning your own business premises does have its advantages, and if you have decided to take the plunge and buy your business premises then you will probably have to consider a commercial mortgage. A commercial mortgage is much the same as a homeowner mortgage except that it is for a business property rather than a residential one. However, one thing to remember is that your mortgage lender may have a legal claim over the property until the loan has been repaid in full.

When it comes to commercial mortgages it is worth getting professional help either from an independent mortgage broker or another type of independent financial advisor. The reason for doing this is not just so you can gain access to a wider range of commercial mortgages, but also because commercial mortgage payments are subject to tax benefits which could help you in the long run, for example interest on commercial mortgage repayments might be tax deductible.

Before you start looking for your commercial property it will probably be worth doing an initial investigation into the commercial mortgages available to you. This will give you a good idea of how much you will be able to borrow and how much deposit you will need to raise to buy your business property. Many commercial mortgages available from business mortgage lenders will only lend you 70% of the property’s value, so you need to make sure you can get all the money together to purchase the business property you are looking at.

In terms of the types of commercial mortgage available to you, there are several options, especially if you decide to use a mortgage broker. The main choice you will have to make is between an interest only commercial mortgage and a repayment commercial mortgage. After that you will find your options are similar to those you have for a homeowner mortgage, so variable rate mortgages, fixed rate mortgages, capped rate mortgages and tracker mortgages should all be available to you.

Before you decide on a commercial mortgage you should always seek professional advice from a mortgage professional. This article is only a general guide to commercial mortgages so you are better informed once you find a local mortgage broker.

Graduate Mortgages

You may not be as financially secure as you would like after graduating with the expenses of student life, which is why many high street and independent mortgage lenders offer great graduate mortgage deals to enable graduates to get their foot on the property ladder.

Many high street banks and building societies offer special deals for graduate mortgages, but bear in mind a mortgage broker will be able to find the best mortgage deal from the entire mortgage market if you are looking for a graduate mortgage.

Overseas Mortgages

If you are thinking about buying a holiday home abroad, unless you have the capital upfront, you will need to secure yourself an overseas mortgage, which is available from many mortgage lenders in the UK.

Much the same as graduate mortgages, an independent mortgage broker will be able to set you up with the best overseas mortgage. Your local mortgage broker will be able to provide you with more information about overseas mortgages.

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