Introduction To Mortgages

It’s now estimated that mortgage payments in western countries such as UK, USA and Western Europe account for 40% of monthly household expenses. In the UK, the average mortgage has zoomed up to well over £120,000 (and much more in popular cities such as London).

There is no doubt that your Mortgage will be one of the most serious commitments you will ever make in your life – and with the huge range of mortgage types available these days it’s worth understanding what mortgage type may be right for you. This could save you tens of thousands of dollars and more over the term of your mortgage payment.
Home buying is a major step. The last thing that you want to do is rush into such a mortgage option that may be completely wrong for you. Someone who is not informed about the current trends and latest information is opening themselves up to major problems.
For example, not all mortgage companies are moral in the way they do business. Known as predatory lenders, the bad ones will seek to get you into a home and sign the papers without any thought as to whether the mortgage deal they’ve given you is actually a good fit for your needs. For example, here are a few factors that you should consider when finding out which mortgage would be the best choice for you:
• Interest rate
• Type of mortgage (fixed? variable? offset?)
• Fees/penalties
• Lending flexibility
Mortgage providers vary significantly in this regard, and you really need to make sure you do some solid research to find your best option.
The information contained here will help you, whether you’re looking for your first ever mortgage, or to refinance an existing loan.

The Different Types Of Mortgages Available

Mortgages are a multi-billion dollar a year industry and there are different mortgages now available to suit a wide variety of needs and situations. No matter what your circumstances, you’ll probably find a mortgage that suits you. Here, we’ll look at the various different types of mortgages that are widely available in the market:

Before starting you should know that most mortgages fall into two distinct categories – repayment and interest only. With the first, your monthly payments include repayment of the loan amount plus the interest. With interest only mortgages only the interest is covered and the person arranges to make the actual loan repayment independently. Here’s some more information about the different types of mortgages available:

Fixed Rate Mortgages – with the fixed rate mortgage your rate is steady for a certain number of years. The good thing about fixed mortgages is that you know exactly what your payments will be for the fixed period. This works well for those on a strict budget who need to know exactly what will be payable month after month. The downside to fixed rates is that if the interest rate falls you continue to pay the higher rate. Of course, on the flip side, interest rates might rise which means your rate stays at the fixed level.

Usually, fixed rate mortgages come with strict penalties should the borrower wish to end the term early.

Variable Rate Mortgages – Variable rates are linked to the underlying base rate of interest. As the underlying interest rates rise, so will your underlying variable rate. Variable rates are usually popular in economic cycles where the rate is generally headed lower. Of course, you can never tell for sure what the rate will do so there is a certain element of risk attached with variable rate mortgages.

Capped Mortgages – Capped mortgages are supposed to offer the best of both worlds. They impose a “cap” on the maximum interest rate you’ll ever pay and so offers a security – so if rates fall so do your repayments, but rates can only rise to the value of your cap. On the surface the capped mortgage appears to be ideal – but dig a little deeper and you’ll see that the number of cap rate mortgages offering competitive rates are somewhat limited.

Discounted Mortgage Deals – Sometimes, mortgage providers offer new clients “discounted rates” – these are rates that are lower than their standard variable rates and they last for a certain period. After the period the mortgage switches to the standard variable rate. This can be a good option but you’ll need to check that the rate it switches to is competitive.

100% Mortgages – This is a mortgage where the borrower does not pay any deposit. With other mortgage types, the borrower needs to put some money down, but with 100% Mortgages, this is not required. This is a good option if you’re unable to find money for a deposit but beware – 100% mortgages tend to be far more expensive than other mortgage types. You may also find that most of these mortgage types tie you in for longer periods (never a good thing) and you may be required to sign up to a mortgage indemnity policy (again, not a good thing).

Buy To Let Mortgages – Many people are discovering that they can increase their net worth quickly by acquiring “buy to let” properties. There are now specific buy to let mortgages that help people who want to let out their properties for investment purposes. These tend to be different to standard mortgages.

Bad Credit Mortgages – There are even mortgages available that cater to people who have bad credit.

Other Mortgage Types – Believe it or not we’ve only covered a sample of the mortgage deal types out there. There are many other very specific mortgages from self certification mortgages to offset mortgages that may cover you if the standard ones do not apply.