Types of Mortgages Available
Choosing the right sort of mortgage to meet your needs and circumstances can seem a bit overwhelming. There are many different types to choose from, all meeting the needs of different types of borrowers. The good news is that we’ll be on hand able help you, explaining what’s on offer, what the key features are, and what type of mortgage is most suitable for your individual circumstances.
A buy-to-let mortgage is a loan for purchasing a residential property that is let to tenants rather than lived in by the borrower. The typical deposit required is likely to be around 25%, although better deals will be available to those who can put down as much as 40% of the purchase price. Most buy-to-let mortgages are available on an interest only basis. Lenders will consider the potential rental income the property will generate when deciding whether to grant the loan.
A Buy to Let mortgage will be secured against your property.
The Financial Conduct Authority does not regulate some forms of Buy to Let mortgages
The interest rate is often higher than that available on other variable and fixed rate mortgages, and the cap can be set quite high. However, it provides the certainty that your payments will not rise above a certain level.
A capped rate is normally only available for an introductory period, which can typically be from two to five years.
This type of mortgage may also have a minimum rate of interest that the lender will charge for a specified period. This is referred to as a ‘collar’.
The amount you receive is normally expressed as a percentage of the amount you have borrowed although it can be a fixed amount.
However, it’s important to be aware that this type of mortgage may not be offered at a competitive rate, and might mean that you’ll be paying higher monthly payments as a result.
The obvious benefit here is that the rate is lower, so your repayments will be cheaper. However, if interest rates rise, you can expect your repayments to increase too. You also need to be aware that lenders have differing SVRs, so you may need help in working out which discount deal is most suitable and most cost-effective option for you.
If you choose a fixed-rate mortgage, you will need to think about arranging your next mortgage deal a few months before it ends, as when it does, you’ll be moved onto your lender’s Standard Variable Rate (SVR), which generally means you’ll be charged a higher rate.
This means that you will need to make other arrangements for paying back the capital sum. These mortgages are not as widely available as they once were. Lenders will now only lend money in this way if the borrower can clearly demonstrate how they propose to repay the capital sum at the end of the mortgage term.
This means that instead of earning interest on your savings, you pay less interest on your mortgage. So, for example, if you have a mortgage of £125,000 and you have £25,000 in your linked accounts, then your monthly mortgage interest would be calculated on £100,000 instead of the balance of £125,000.
Whilst an offset mortgage can save you money and shorten your mortgage term, they can be more expensive than comparable deals, and there may be less choice available.
With a repayment mortgage, or capital repayment mortgage to give it its full name, you pay back part of the mortgage capital and the monthly interest each month. At the outset, most of your monthly payments will comprise of interest; over time, more of your monthly payment will be repaying the capital.
With a repayment mortgage, you are guaranteed to repay the full mortgage by the end of your mortgage term, provided you make your repayments in full each month.
With this type of product there isn’t usually an early repayment charge with your lender, so you can move to another type of mortgage at any time, and can potentially overpay your mortgage to pay it off faster and shorten the term. However, variable rate mortgages can potentially change if the bank of England base rate rises or falls, making it harder to budget for your repayments. There can often be better and more cost-effective deals available in the marketplace, why not ask us for our recommendations?
Firco are independent mortgage brokers who has strong relationships with the key lenders in the UK mortgage market, including those private banks who do not have a high-street presence. Arranging bespoke mortgage solutions for clients, providing a tailored one-to-one advisory service, delivered face-to-face or remotely, depending on what suits you.
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