What is a Repayment Mortgage?
With a Repayment Mortgage each monthly payment you make pays off the interest and some of the loan. At the start of the mortgage most of your monthly payment pays off the interest and what’s left goes towards reducing what you’ve actually borrowed. As the life of the mortgage progresses the ‘balance’ reduces and as the interest charges become lower and as a result a greater part of the monthly repayment is used to reduce the loan.
What is an Interest Only Mortgage?
With an interest only mortgage, your monthly repayment goes towards paying off the interest. At the end of the term of the mortgage you still need to repay the capital borrowed. To do this you could establish a savings or investment scheme, but there is a risk that if that scheme does not cover the value of your mortgage by the end of the term, it may not be possible for it to be repaid in full and you may have to sell your property to clear the balance.
What is a Current Account Mortgage?
This is a mortgage where you roll the majority of your financial commitments up into one account. Your savings and your income are paid into this pot combining all your debt in the same account. It’s not so much a mortgage, more of a large overdraft that’s secured on your house.
What is an offset mortgage?
This type of mortgage differs from a standard current account mortgage as your mortgage account is separate from a savings and income account. Your income and savings are offset against your mortgage, which reduces what you owe. The interest is calculated on a daily basis on that reduced balance.
|
What is a standard variable rate?
A mortgage where the interest you pay goes up and down, usually (but not always) in line with the Bank of England’s base rate.
Discounted rate
The interest rate on the mortgage will vary, but you will pay a rate less than the lender’s standard variable rate. As you might expect, such beneficial treatment can’t last forever and after a limited period the mortgage will revert to the lender's standard variable rate.
Fixed rate
As the name suggests, the payments on a mortgage based on this type of product are guaranteed to stay the same for a limited period of time. Usually, at the end of the fixed period, you will revert to the lender’s standard variable rate.
Capped rate
Another limited time period term where even though your payments can go up and down, they will not to rise above a certain level. This allows the borrower to take advantage of any fall in interest rate but at the same time be protected against significant rises. At the end of the capped period the mortgage usually reverts to the lender's standard variable rate.
Tracker Rate
Your monthly payment will vary with a Tracker mortgage as the mortgage tracks an industry index such as the Bank of England’s base rate for a pre defined period of time. If the Index falls, so does your mortgage. However, if the index rises, so will your payments.
|
