Mortgages

When you’re looking to get a mortgage, it’s not just the repayments of the mortgage that are important, it’s the length of time you choose to have it for, the interest rate, the fees you’ll be charged and whether it’s fixed or variable, among other considerations. Here’s a basic guide…

What is a mortgage?

A mortgage is a type of loan taken out to cover the cost of a property or land.

Types of mortgages…

The main three are:

  • Interest-only – Paying only the interest on the loan and nothing off the capital (the amount you borrowed)
  • Repayment – Paying the interest and part of the capital off every month
  • Off-set – Savings and a mortgage with the same lender and your cash savings are used to reduce – or ‘offset’ – the amount of mortgage interest you’re charged. This type of mortgage isn’t suitable for young people, it’s for established professionals

Fixed vs variable rate mortgages

Mortgages can be on fixed or variable rates, this effects how much you pay back each month. For either, always compare the fees charged for entering the mortgage, and for exiting.

Fixed rate – the interest rate stays the same for a set amount of years (typically it’s either two, three or five years).

What to know about fixed rate mortgages…

  • It’s easier to plan and budget for your payments without any surprises
  • There is a charge for leaving the mortgage early (there will be a minimum term agreement)
  • Take note of the date your fixed period ends as you can either renew your fixed contract or find a better one (if possible), otherwise you will automatically be placed on a variable rate
  • Overpaying usually incurs a fee

Variable rate – the interest rate can change, and so the amount you pay each month is different

What to know about variable rate mortgages…

  • It’s in line with the base rate set by the Bank of England
  • The rate can fluctuate and so you’ll need to have some savings set aside for when they rise
  • You can overpay payments or leave the contract at any time