Types of Mortgages in Manchester Explained
Types of Mortgages | Mortgage Advice in Manchester
When you start out looking for a mortgage, you will soon realise that there are lots of different options available. Ranging from mortgages for First-Time Buyers in Manchester to Home Buyers, even Remortgages, there really is a whole variety to look at.
Below you will see a list of the most popular types of mortgages available on the market. If you have any questions regarding any of the below mortgage options, then please do not hesitate to contact us.
A fixed-rate mortgage means that your mortgage payments are going to stay the same for a set period of time. You can set the length of which you want to fix your payments for, typically this being 2, 3 or 5 years or longer.
No matter what happens to inflation, interest rates or the economy you know that your mortgage payment, usually your biggest outgoing, will not change.
A tracker mortgage means that your interest rate will track the Bank of England’s base rate. So in other words, the lender that you are with does not actually set the rate themselves.
You will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying a rate of 2%.
Repayment Mortgages is the name given to “normal” mortgages. Each month you are paying capital and interest combined. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property becomes yours.
This is considered to be the most risk-free way to pay your capital back to the lender. In the early years, it is mainly the interest that you are paying and your balance will reduce very slowly especially if you have taken out a 25, 30 or 35-year term.
This situation switches in the last ten years or so of your mortgage, where your payments are paying off more capital than interest and the balance will come down much faster.
Whilst many buy to let mortgages are set up on an interest-only basis, it is much more difficult to get a residential property on an interest-only basis.
It is much less likely for lenders to offer an interest-only product now. However, there are certain circumstances where this can be an option. These include downsizing when you are older or have other investments what you will use to pay the capital back.
Lenders are very strict when it comes to offering these products now and the loan to values are a lot lower than back in the day.
Initially becoming popular in Australia, Offset Mortgages are a flexible type of Mortgage Arrangement. Due to there being a lot more to these than the average mortgage, the interest rates can be slightly higher. Offset Mortgages give you the ability to potentially overpay your mortgage, underpay your mortgage or pay off a lump sum.
The main attraction of these types is that your chosen lender will open up a savings account to run alongside your mortgage account. As an example, we’ll say that you take out a £100,000 mortgage but in your savings, you already have £30,000. You can then put that £30,000 into your new savings account and only pay interest on the remaining £70,000.
The idea behind this is that if you keep your payments up as normal per month, then you’re able to pay off the mortgage earlier and with less interest.
Capped Rate Mortgage
Similar to Fixed-Rate mortgages, Capped Rates have a maximum amount that a customer will pay each month with a maximum interest rate. With that in mind, if you’re capped at say 5%, you’ll never go higher than 5%.
Where these can be more beneficial, however, is if interest rates start to drop. So for example, if the rates dropped to 4%, 3% or 2%, then your mortgage will do the same.
Flexible mortgages allow you to underpay and overpay by unlimited amounts. Underpayments are only allowed if you’ve overpaid first and have agreed with a lender to do so. This, however, is not something that we recommend.
Overpayments can be fairly beneficial though, as you could end up paying off the mortgage early and with significantly less interest. Mortgage flexibility is normally a feature of Offset Mortgages, which you can read about above.