Mortgage Types Jargon Busting
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Mortgage Types Jargon Busting – Your Guide
When it comes to mortgages, there can be a lot of jargon involved from the outset which can make things a little daunting, particularly if you are a first time buyer or simply just inexperienced in the home buying process.
We believe it’s important to understand every detail when it comes to getting a mortgage, so we’ve done our best to bust common jargon that tends to prop up throughout the mortgage process, so you can continue your house-buying journey with confidence.
Fixed Rate Mortgages
This is where you have a particular interest rate fixed on your mortgage for a certain period of time. Typically this is two – five years, but seven – ten year fixed rates are also offered by some lenders. Fixed rate mortgages essentially mean you are ensuring your interest rate stays fixed regardless of any external factors, such as the economy.
The element of certainty involved with fixed rate mortgages makes them a popular choice for buyers, as you know exactly how much you will need to pay towards your mortgage for a certain time period.
It’s important to consider the length of time you adopt your fixed rate for, as you can incur early repayment charges if you decide to leave your mortgage before the product term ends. For example, if you decide to move away from your mortgage after only two years of your five year fixed rate term, it’s likely there will be a large cost for you to pay out.
Once your fixed rate term has ended, you will automatically be put onto the lenders standard variable rate (SVR). This variable rate can move up or down and is typically higher than the fixed rate term you have previously been paying.
As a broker, we would get in touch with you before your fixed rate term ends so we can explore other options, such as remortgaging with a different lender or taking a new product with your existing lender, in order to avoid the uncertainty of an SVR.
Variable Rate Mortgages
These are essentially the opposite of fixed rate mortgages. All lenders set their own variable rates depending on various different factors.
The rate can change month to month – which means you could be paying more one month and less the next.
These can be described as types of a variable rate. Tracker rates move depending on a certain variable, which is commonly the Bank of England base rate. So if the base rate goes up, tracker rates would follow suit.
These are typically based on the lender’s own SVR. Your discounted rate will essentially be subtracted from the lenders SVR at a given time. For example, if your discounted rate is 2% and the lender’s SVR is 4%, you will then pay a 2% interest rate on your mortgage repayments. Your discounted rate will be agreed at the start of your mortgage deal, but it’s important to remember your lender will have control over what they set their SVR rate at any given time.
These can be a good product in the right circumstances. They are typically very useful for people who have a large amount of savings available to them.
With an offset mortgage, you will have a mortgage rate and a savings account with the same lender, and any money that’s held in this savings account is used to offset or reduce the mortgage amount.
Where you are paying the interest on your loan but you are also paying off your mortgage at the same time, essentially meaning you are reducing how much you owe on your mortgage each month.
Interest Only Repayment
Where you only pay the interest costs you incur on your mortgage each month. Most commonly, this repayment type is adopted by buy to let or holiday let homes, so landlords can keep monthly repayments to a minimum in order to maximise their return.
Every mortgage will have its own different features and incentives, which are made clear to borrowers from the outset.
Overpayments – most mortgages will have an overpayment allowance attached to them every year. Having an overpayment allowance essentially means you pay off a bit more of your mortgage in addition to your standard monthly repayments. So you’re paying off your loan quicker and paying less interest over time, as the amount you owe would be reducing.
Cashback – some lenders offer cashback as an incentive to tackle any extra costs on a mortgage. For example, this could be £1,000 cashback on completion of your mortgage to help with some of the legal costs that may be outstanding.
Porting your mortgage – When you take out a fixed rate mortgage, you might want to move house before the end of your fixed rate period. If your mortgage is portable, it means a lender will let you move the loan to a new property without incurring any early repayment charges (subject to that property being suitable to their lending criteria).
What does it cost to talk to a mortgage broker?
Getting expert advice on your mortgage is extremely important, but many people are unsure how much it actually costs to onboard a mortgage broker for the process.
We don’t charge any upfront fees for an initial conversion or advice and we only charge for our expertise when we have got you a mortgage offer.
Initially, we will talk to you to gauge your current personal and financial circumstances, so you can have a detailed understanding of exactly how much you can potentially borrow.
Get in touch
Mortgages are a huge commitment, so if you don’t understand something don’t be afraid to reach out and ask for help.
Drop us an email or use the contact form on our website and we will be happy to help. Or if you want to talk to someone immediately, pick up the phone and one of our expert team members will be on hand.