Fixed Rate Mortgages
A fixed rate mortgage is a type of mortgage where the interest rate is fixed for a set period of time, usually between two and ten years. During this time, your monthly mortgage payment will remain the same, regardless of any changes in the Bank of England base rate or the lender’s standard variable rate. This type of mortgage provides certainty and stability for borrowers, allowing them to budget their finances more effectively.
For example, if you took out a fixed rate mortgage at a rate of 2% for five years, your monthly mortgage payment would remain the same for the duration of the five-year fixed term. This means that if interest rates were to rise during this time, you would not be affected, as your interest rate is fixed.
Variable Rate Mortgages
A variable rate mortgage is a type of mortgage where the interest rate can change at any time, based on a number of factors, such as the Bank of England base rate, the lender’s standard variable rate, or market conditions. This means that your monthly mortgage payment can increase or decrease, depending on the interest rate changes.
For example, if you took out a variable rate mortgage at a rate of 2%, your monthly mortgage payment would increase if the interest rate went up, or decrease if the interest rate went down.
An interest-only mortgage is a type of mortgage where the borrower only pays the interest on the mortgage each month, with the loan balance remaining the same. At the end of the mortgage term, the borrower must pay off the entire loan balance in full, typically through the sale of the property or by remortgaging.
For example, if you took out an interest-only mortgage for £200,000 over 25 years, your monthly payment would only include the interest charged on the mortgage, with the loan balance remaining the same. At the end of the term, you would need to pay off the entire £200,000 balance in full.
A buy-to-let mortgage is a type of mortgage specifically designed for landlords who are purchasing a property to rent out. Buy-to-let mortgages often require a larger deposit and have higher interest rates than standard residential mortgages, as lenders view them as higher risk.
For example, if you were purchasing a buy-to-let property for £300,000 with a 25% deposit, you would need to put down £75,000 upfront. The remaining £225,000 would be borrowed through a buy-to-let mortgage, which would have a higher interest rate than a standard residential mortgage.
A guarantor mortgage is a type of mortgage where a family member or friend guarantees the loan repayments if the borrower is unable to make them. This type of mortgage is often used by first-time buyers who do not have a large deposit or a strong credit history.
For example, if you were a first-time buyer looking to purchase a property for £200,000 with a 10% deposit of £20,000, but you did not have a strong credit history, your parents could act as guarantors for your mortgage. This would give the lender more security, as they would know that the loan repayments would be covered if you were unable to make them.
Adverse Credit Mortgages
An adverse credit mortgage is a type of mortgage designed for borrowers with a poor credit history or a low credit score. Adverse credit mortgages often have higher interest rates than standard mortgages, as lenders view them as higher risk.
For example, if you had a history of missed payments or defaults on previous loans, your credit score may be low, making it more difficult to obtain a standard mortgage. An adverse credit mortgage could be an option, but you would likely need to pay a higher interest rate as a result.
A subprime mortgage is a type of mortgage designed for borrowers with a poor credit history or a low credit score. Subprime mortgages are often used by borrowers who do not qualify for a standard mortgage. Subprime mortgages often have higher interest rates and fees than standard mortgages, as they are viewed as higher risk.
For example, if you had a low credit score and were unable to obtain a standard mortgage, a subprime mortgage may be an option. However, the interest rate and fees may be higher than for a standard mortgage.
A cashback mortgage is a type of mortgage where the lender provides a cash incentive to the borrower at the start of the mortgage. This cashback can be used towards the cost of moving home or for other expenses.
For example, if you were taking out a mortgage for £200,000 with a cashback incentive of £2,000, you would receive the £2,000 cashback when the mortgage completed. This could be used towards the cost of moving home, such as paying for solicitors’ fees or removal costs.
In conclusion, there are a range of different types of mortgages available to borrowers in the UK, each with its own advantages and disadvantages. It’s important to do your research and speak to a mortgage broker or financial adviser to ensure you find the right mortgage for your circumstances. Remember to consider factors such as interest rates, fees, repayment terms, and any incentives or guarantees that may be available.