Selecting a mortgage can be a difficult and time-consuming task, especially if you have limited funds to put up for a deposit. UK mortgage lenders offer a variety of home loan packages under different names with different interest rates, up-front costs, and small print terms, all of which are subject to change quite frequently. For this reason, you should always use the APR, or annual percentage rate of change, as the basis for comparison, because this rate factors in all the costs.
It's essential to do your homework - if you don?t go into the whole process knowing what you want and how much money you wish to spend initially and over the home mortgage loan term, the variety of different offers may leave you feeling dazed and confused.
There are many different types of UK mortgage options available, each with their own advantages and disadvantages.
Buy to Let Mortgage A buy to let mortgage allows you to take out multiple mortgages in order to fund the purchase of multiple properties thereby allowing you to grow your property investment portfolio. This type of UK mortgage is useful if you are buying a property with the intention of renting it out. For a buy to let mortgage, your normal income does not calculate into the payments. They are instead based on the amount of rental income you plan to receive by renting the property out.
Repayment Mortgage A straightforward repayment mortgage is the safest and easiest way to make payments on your UK mortgage. Each month, a portion of your payment will go toward the mortgage repayment itself, and the rest will go towards paying off the interest due. If you make all of your payments in full and on time, your UK mortgage is guaranteed to be paid off by the end of your loan term.
Interest Only Mortgage An interest only mortgage allows you to make only the monthly interest payment on your loan while the actual mortgage balance remains outstanding. Along with making a payment on the interest of your loan, you will also make a payment into a savings investment. At the end of your loan term, the idea is to have enough money in your savings or investment account to pay off the principal portion of the UK mortgage. You may have more than enough to repay the loan, but you may also fall short on your final payment if your investment doesn?t perform the way you expected, so this is a high-risk strategy that you should take professional advice before proceeding with.
Fixed Rate Mortgage With a fixed rate mortgage, your UK mortgage rate will remain the same so your payments will remain the same for a period of time agreed upon by you and your lender. This type of UK mortgage allows you to be able to plan ahead because you know what your monthly payments will be for a period of time without having to worry about UK mortgage rate fluctuations.
Discounted Rate Mortgage A discount rate mortgage allows you to pay less than the standard variable rate for a set period of time. Your payment will fluctuate with the UK mortgage market, but for a decided upon period of time, it will remain under the standard variable rate. The advantage of this type of UK mortgage is that you will save money on interest payments for the duration of the discounted rate term.
Capped Rate Mortgage A capped rate mortgage is set up so that your UK mortgage rate will not increase over a set level for a certain period of time. Your lender will set an upper rate or a cap, and if the standard variable rate is higher than the cap, you will not have to pay anything higher than your capped rate. Also, if the standard variable interest rate falls below the cap, your payments will fall below the cap as well.
Adjustable or Variable Rate Mortgage Adjustable or variable rate mortgages have lower UK mortgage rates, and they are tailored to your different circumstances and needs. An adjustable rate mortgage will save you on overall interest costs, but your payment may fluctuate from time to time as the UK mortgage rate changes.