With so many different types of mortgages on the market, deciding which one is right for you can be tricky.
There are a variety of mortgage options, from fixed-rate and tracker rates to interest-only or repayment. Trying to navigate the mortgage market can be a tricky business without an expert to guide you through it. With so many different types of mortgages available, each one has its pros and cons for your circumstances.
So, what are the different options? The guide below from the Home Buying App provides an overview, and your mortgage advisor will also help guide you through the options and recommend the right solution for you.
Different mortgage types
Repayment mortgage
Every month you will pay back some of the money you borrowed, as well as the interest. At the end of your mortgage term, assuming you have met all the mortgage payments, you will have paid off your mortgage in full.
Interest only mortgage
You only pay the interest each month, not the capital. This means your payments will be lower, but the overall amount you initially borrowed will still be outstanding at the end of the mortgage term. Your mortgage advisor will be able to provide guidance on whether this is a suitable option for you.
If you choose this mortgage then you need to have alternative arrangements to pay it off, such as investments or savings plans.
Fixed rate mortgage
You will pay the same amount every month for a set period of time (this could be two, five or even 10 years), regardless of what happens to the Bank of England base rate.
Many people like the peace of mind this brings, as you’ll always know what your mortgage payments will be.
Tracker rate mortgage
This type of mortgage tracks the Bank of England base rate, so the interest rate charged is the base rate, plus an agreed margin (an additional rate). Therefore, your mortgage repayments will fluctuate as and when the base rate changes.
Discount mortgage rate
All mortgage lenders have a standard variable rate (SVR), which is an interest rate set at their discretion. The SVR is influenced by the Bank of England base rate, but not tied to it. If you are on a fixed or tracker mortgage and your deal period comes to an end, you will revert to an SVR mortgage unless you remortgage.
A discounted variable rate mortgage works a bit like a tracker, except instead of tracking an external base rate, it tracks the SVR at a discounted rate.
For example, if your lender has an SVR of 4 per cent and your discount is 1 per cent, your interest rate will be 3 per cent. If the lender then raises its SVR to 5 per cent, your interest rate will be 4 per cent. It is worth remembering that your lender is free to change its SVR at any time, which can make it tricky to manage your future budget.
Offset mortgage
Your mortgage is linked to a savings account or perhaps a current account. The amount you have in these accounts will be deducted from your outstanding mortgage balance. This means you’ll pay less interest, as you only pay interest on the outstanding mortgage amount. However, you’re unlikely to earn interest on your savings which are offset.
Standard variable rate mortgage (SVR)
Once your fixed rate comes to an end, you’ll fall onto a standard variable rate, known as SVR. SVR payments will rise and fall at the lender’s discretion, but traditionally they track the Bank of England’s base rate. For instance, if the base rate goes up, your mortgage payments will follow. If the base rate goes down, so will your mortgage payments. You can use the Home Buying App to request a meeting with your mortgage advisor, who will be able to source the best rate deal in the market place that meets your needs. It’s a good idea to start the review of your mortgage four or five months before your rate deal is due to end and to avoid your mortgage rolling over onto the lender’s standard variable rate.
What is protection, and do I need it?
It's important to protect yourself, and your family, from the worst-case scenario.
Your protection needs will change throughout your life in line with your family situation, employment and financial circumstances. It’s important to consider what kind of protection you might need and review this on a regular basis, taking into consideration any changes in circumstances. A good time to assess your requirements is when you’re reviewing your mortgage needs.
Common types of cover include:
Mortgage protection
Mortgage payments are commonly your largest financial commitment, so it’s important to think about how you can protect yourself. If your mortgage is going to be in joint names with your partner, consider the financial impact if one of you were to die during the mortgage term.
Life insurance
Life insurance gives you the comfort of knowing that your loved ones will be provided for should you die during the term of your policy. When linked to a mortgage, life insurance will pay out a lump sum if you die, so the person sharing the mortgage with you and other dependents can cope financially.
Critical illness cover
This is similar to life insurance but will pay out on the diagnosis of certain illnesses, as opposed to only paying out upon death. You will receive a tax-free lump sum upon the diagnosis of your illness, and once this money has been paid out to you, the policy will end.
Income protection
This is designed to support you financially if you can’t work due to illness or injury. It will replace part of your income and will continue to pay out until you can work again. The payments will be regular, tax-free instalments.
Buildings and contents insurance
Home insurance is a general term used to describe two very different types of insurance. Buildings insurance covers the building, permanent fixtures, and fittings, such as kitchens and bathrooms. Contents insurance covers things you keep in your home, such as furniture, TVs/electronics, personal belongings, and some types of flooring, including carpets.
Your Rettie Financial Services Mortgage and Protection Advisor will recommend the best insurance products to suit your needs, having first gained an understanding of your personal circumstances. Further information about protection is on the Home Buying App and you can also request an appointment to speak to your advisor via the app with just the click of a button.
GET IN TOUCH TODAY with our Mortgage and Protection Team to organise a no obligation consultation.
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Call us on: 03301 759 977
Email us on: financialservices@rettie.co.uk
Rettie Financial Services Ltd is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority.
Rettie Financial Services Ltd. Registered Office Address: Deuchrie, Dunbar, East Lothian, United Kingdom, EH42 1TG. Registered in Scotland Number: SC711925.
For insurance business we offer products from a choice of insurers.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
There is no guarantee that it will be possible to arrange continuous letting of your property, nor that rental income will be sufficient to meet the cost of your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.