Different Types Of Mortgage

Most people know they need a mortgage to buy a house. But which one is right for you?


Choosing the right mortgage is an important decision


Applying for a mortgage can be a daunting task - but knowing which mortgage is right for you will save you both time and money.

Here at New Home Finder, we have compiled a list of different mortgage types which will give you a good head start in choosing which one you can or should apply for.

Most mortgage brokers and lenders will suggest a mortgage type for you based on your situation - however a bit of industry knowledge will ensure you are not forced into a mortgage that is wrong for you.

1.    Repayment Mortgage
The most common choice of mortgage – means you pay both interest and part of the capital off every month for the set amount of years of your mortgage term. Your monthly payments will be calculated to include both capital and interest meaning at the end of your mortgage term you will have nothing left to pay and the house will be officially yours.

2.    Interest Only Mortgage
This mortgage types means you only pay the interest on the loan and nothing off the capital. This means at the end of your mortgage term you will need to have sufficient funds or a plan to pay off the actual capital of the property. Most people with an interest only mortgage will open an ISA (savings account), pension or investment bonds as a repayment vehicle to pay the remaining amount at the end of the mortgage term.

3.    Combination Mortgage
You may be able to get a mortgage which incorporates both repayment and interest only payments meaning once all your interest is paid that the end of your mortgage term, you will be required to pay the remaining capital off your property price. For example, if you bought a house for £300,000 and over the course of the mortgage term paid all the interest plus £200,000 of the capital. You would only need to pay £100,000 once the mortgage term expires.  

4.    Buy-to-let Mortgages
This mortgage type is designed for investor or people who specifically buy property to let it out. The interest rates are usually higher and the minimum deposit for this type of mortgage is typically 25% of the property value rather than 10% on a residential mortgage. A BLT mortgage are usually calculated on an interest only basis and is not calculated on the amount you earn but the amount of rent you will be able to charge. This figure should be at least a quarter more than your monthly mortgage repayments. There are a number of different types of BTL mortgages which will be dependent on your deposit size, interest rates and how much you earn (can you afford to pay back the mortgage if the house remains unlet for a period of time).  

5.    Offset Mortgage
An offset mortgage means you pay money from your savings account off your mortgage in order to reduce the interest you are paying on your mortgage. For example if you owe £180,000 on your mortgage and have £30,000 in a savings account you could pay these savings into your mortgage meaning you would only be paying interest on £150,000 rather than £180,000. This would reduce the amount of interest you pay on your property which could mean that you reduce the amount of years you pay off your mortgage quite dramatically, plus save thousands of pounds in interest. The money paid into your offset account can also be accessed at any time.  

 

Publish date: 15/09/2017