What Are The Different Types Of Mortgages Available?
When you’re looking to buy a house, one of the first things you need to think about is what type of mortgage you can get. A mortgage is essentially a loan that helps you buy a house by allowing you to borrow money from the lender and pay it back over time with interest.
There are many different types of mortgages out there, each with its own pros and cons. The type of mortgage that suits your circumstances will depend on your personal situation and finances.
Each mortgage has its own eligibility criteria and conditions, so it’s worth reading up on them all before making a decision on which one is right for you.
Fixed-Rate Mortgages
A fixed-rate mortgage is a type of mortgage where the interest rate stays the same throughout the life of the loan.
Since the rate is fixed, you can plan your finances more accurately because you’ll know exactly how much you’ll be paying each month. There are many fixed-rate mortgage deals available, from short fixed-rate mortgages to long fixed-rate mortgages.
Generally, the longer the fixed rate, the higher the interest rate will be. This means that a short fixed-rate mortgage may be a cheaper option for you if you’re looking to buy a house soon or you’re on a tight budget.
Variable-Rate Mortgages
A variable-rate mortgage is where the interest rate is determined by a financial index. Examples of indices used by lenders include the Bank of England base rate, the Capital London Housing Mortgage Rate, and the London Interbank Offered Rate (LIBOR).
The rate is adjusted every year, but you’ll usually be given a few months’ notices. Exploring variable-rate mortgages can be a good idea if you want to get a lower interest rate than you can with fixed-rate mortgages.
You may want to consider this option if you think interest rates are going to rise in the future. You may also want to choose a variable-rate mortgage if you have a smaller deposit or are applying for a buy-to-let mortgage.
Equity Mortgages
An equity mortgage is a type of mortgage where you borrow money against the value of the house. You might do this if you’re struggling to get a mortgage at a reasonable rate, or if you’re a first-time buyer with a small deposit.
When you take out an equity mortgage, you’ll be given a lower mortgage amount, which means you’ll need a bigger deposit. This is because you’ll have less equity in the house. The good thing is that you’ll have more flexibility when it comes to choosing a mortgage.
You’ll have to repay the mortgage as normal, but you’ll also have to pay back the extra amount used to buy the house. So, you need to make sure that you have enough cash to cover the extra repayments.
Tracker Mortgages
A tracker mortgage is a type of mortgage that keeps pace with the Bank of England base rate. This means that if the base rate goes up, so will your mortgage rate. If the base rate goes down, however, your rate won’t change.
Tracker mortgages are aimed at people who want to be prepared for rate rises. If you take out a tracker mortgage and rates rise, you’ll be paying a higher rate, but if rates fall, you’ll be paying a lower rate. If you’re worried about interest rates rising, a tracker mortgage could be a good option.
However, it’s important to note that you won’t be guaranteed a lower rate if interest rates fall. You’ll only get a lower rate if the tracker mortgage you choose matches the rate of the Bank of England base rate.
Help To Buy Mortgages
A Help to Buy mortgage is a government-backed scheme aimed at first-time buyers who have a small deposit. The government will provide you with an equity loan, which you can use to put down a deposit for a house.
You can repay this loan at any time, but if you sell the house, you’ll have to pay it back in full. You can only get a Help to Buy mortgage through a specific lender, so you won’t have many options when it comes to choosing the right deal for you.
The loan amount will depend on what your home is worth, so you won’t be able to choose the amount you receive.
Mortgage Types For First-Time Buyers Only
If you’re a first-time buyer, you’ll probably be limited to only certain types of mortgages. This is because lenders often impose restrictions on first-time buyers to prevent them from taking on too much debt.
First-time buyers may be limited to lower loan-to-value mortgages, which means they’ll have to put down a bigger deposit. Or they may only be able to apply for a mortgage with a shorter term.
First-time buyers may also be required to take out a mortgage insurance policy. This is because the lender will be taking more of a risk, so they’ll want to be sure that they’re covered if something goes wrong.
Summary
Mortgages are a type of loan that helps you buy a house by allowing you to borrow money from the lender. There are many different types of mortgages out there, each with its own pros and cons.
The type of mortgage that suits your circumstances will depend on your personal situation and finances. If you’re a first-time buyer, you may be limited to only certain types of mortgages. This is because lenders often impose restrictions on first-time buyers to prevent them from taking on too much debt.
