Mortgages

Which mortgage?

A simple introduction to mortgages, outlining the main advantages and disadvantages of different types of products.

A mortgage is a loan you take out to buy a property. Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but don't move home it's referred to as a 'remortgage'. 

Mortgage types

There are two main types of mortgage:

Repayment mortgage

  • Each monthly repayment includes capital and interest.
  • Gradually your loan reduces.
  • At the end of the term your mortgage loan will be repaid, providing you keep up your monthly repayments.
  • A repayment mortgage is a low-risk method of repaying your mortgage.

Interest only mortgage

  • Each monthly payment consists of interest only.
  • You are not repaying any capital so you pay less each month but you will not decrease the initial loan amount.
  • A suitable repayment vehicle should be in place in these circumstances.
  • This type of mortgage is not available from all lenders and some will assess the affordability on a capital and interest repayment basis.
  • If an interest only mortgage is more suitable for your circumstances then your mortgage consultant will discuss this in more detail with you during your appointment.

Mortgage options

Fixed

  • Description: The same monthly payments for the initial period (usually two, three or five years). After this period, the rate usually reverts to a variable rate.
  • Advantages: Easy to budget as exact costs are known. Payments cannot increase during the initial fixed period.
  • Disadvantages: During the fixed period, payments cannot decrease and early repayment charges may apply.

Variable

  • Description: The rate will be driven largely by the economy and the market. The lender decides its current rate, which you pay – this can change.
  • Advantages: You may benefit from rate reductions and pay less each month. Typically, no early repayment charges during the term.
  • Disadvantages: Rates may increase and therefore you could pay more each month. Hard to budget.

Tracker

  • Description: The rate charged is a certain percentage above or below the Bank of England Base Rate for a period.
  • Advantages: Immediate rate reductions – you pay less. Payments reflect the interest rates of the time.
  • Disadvantages: Immediate rate increases – you pay more. There is no protection from this. Hard to budget.

Capped

  • Description: This has an upper limit (the cap) for the interest rate but not a lower limit. They are normally a type of variable mortgage.
  • Advantages: You get the security of knowing your payments won’t go above a certain level but they can go down if interest rates reduce.
  • Disadvantages: Capped rates can be more expensive than the best tracker or discounted rates; you pay for the security of an upper limit.

Discount

  • Description: A special offer set below the lender’s standard variable rate (SVR) for a fixed period. It’s a type of variable rate and your payments can go up and down.
  • Advantages: Your payments will be lower when interest rates are low.
  • Disadvantages: Your payments will increase if interest rates rise so budgeting is difficult.

Offset

  • Description: Your savings will be offset against your mortgage; you’ll only pay interest on your mortgage balance minus your savings balance.
  • Advantages: Reduced interest charged on the mortgage. With the interest saved, you could shorten your mortgage term or make lower monthly payments.
  • Disadvantages: Mortgage payments may go up if you make a withdrawal from your savings. You cannot earn interest from your savings.

The mortgage options available to you will depend on your circumstances.

Please note: Countrywide Mortgage Services does not provide advice or guidance in relation to repayment strategies and is unable to assess the creditability of them. You should seek independent advice if you need further information.

Get in touch

Our expert team of Mortgage & Protection Consultants are available to help you find the best mortgage for you - get in touch to book an appointment.

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