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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.

One of the most difficult financial decisions during this period of economic turbulence is choosing the right type of mortgage.   The tempting rates advertised on best-buy tables are generally available for a short period, after which the rate increases significantly.  Therefore it is prudent to take a long-term view rather than focusing on the initial savings.

The most popular mortgage (or indeed, remortgage) types are fixed rate whereby, as the name would suggest, you agree to pay the same amount back each month over a set time period, and variable rate, where your rate will either depend on the Bank of England base rate or your lender's standard variable rate (SVR).  

According to recent figures published by the Council of Mortgage Lenders, fixed rate mortgages currently account for 56 per cent of all new home loans in the UK, an increase from recent months that reflects the fact that many consumers are looking for stability in the economic downturn.

Fixed rate: The facts

A fixed rate mortgage will include a low introductory rate (typically 2-5 years) followed by a rise to the lender's standard variable rate.   Although each lender's rate will usually be a little higher than the Bank of England's base rate, the lender is under no obligation to reflect changes to the base rate. There are fairly hefty penalties for moving to a different lender during the introductory period, which would negate any savings that you had made, so it is usually advisable to stay put at least for this time.  However, after the initial introductory period has ended, the costs for moving lenders are minimal so astute borrowers can secure themselves a better deal every few years.    

Variable rate: The facts

There are several types of variable rate mortgage; tracker and discounted.  The former is a rate which is guaranteed to move in line with the UK base rate (set monthly by the Bank of England) and will usually be a few per cent higher than the base rate itself, and the latter is where a discount is applied to the lender?s standard variable rate for a set time period.  Tracker mortgages will often specify a minimum rate (also known as a 'cap' or 'collar') to protect the lender from any extreme rate decreases (such as those in recent months).  The existence of a mortgage collar should always be mentioned in your key facts document, but if there is any doubt at all, simply ask the lender.

The rate of a discounted mortgage will vary according to the SVR.  Typically the discount will be offered for 2-5 years.  As with the fixed rate mortgage, you need to be aware of the penalties involved in switching to another lender during this time.

With an interest-only mortgage, you would repay the actual loan in a lump sum after an agreed length of time (the mortgage 'term'), and only pay back the interest in the meantime. 

If you are considering an interest only mortgage, you need to bear in mind that this type of mortgage is an extremely risky proposition, because although it may cost you less each month in repayments, you need to be certain that you will have a large lump sum of cash available at the end of the mortgage term with which to pay back the loan. 

Unless you have a highly paid job or substantial bonuses and are therefore confident that you will have access to sufficient funds, you should take out an interest only mortgage in conjunction with an investment or savings plan that is likely to provide you with a good return.  Unfortunately you are introducing an added element of risk into the proceedings since the best investment yields come from higher-risk schemes. 

How can I get the best interest only mortgage deal?

Some of the best interest only mortgage deals are tied into Endowments, ISAs, and Pension schemes.  In Endowment Mortgages, you pay interest on the amount owed to your mortgage lender, while at the same time investing a sum of money with an insurance company in an endowment policy.

The interest on your endowment policy grows throughout the term of your mortgage into a sum to pay off your outstanding capital debt at the end of the mortgage period. After paying off your capital, you may be left with an extra lump sum of money to be used as you see fit.

Remortgage is simply defined as a process by which the mortgage on a property is moved from your original lender to new lender. The new mortgage, or remortgage, repays your original lender, and at the same time you can raise additional funds for other purposes by getting a remortgage with a lower interest rate than your original mortgage. Remortgaging can be helpful if you want to lower your monthly payments, release equity in your home, or raise an substantial amount of capital.

Because today?s mortgage lending market is so competitive, remortgaging is a very popular way for borrowers to take advantage of the incentives and deals offered by lenders who are looking to attract new business. When you are looking into remortgaging, be sure to get all the early redemption details from your original lender, and be sure to find out what, if any, fees you need to pay to your lender. Most lenders will be happy to provide you with all the remortgage advice you need.

By choosing to remortgage, you can consolidate your existing debt into one monthly payment by using the money from your remortgage to pay them off.

For a standard residential mortgage, you would normally prove your credit-worthiness to the mortgage provider by showing them your recent pay slips and other paperwork relating to your regular income.  If you are self-employed, a freelance worker or contractor, or for any other reason you have irregular income that is earned through commissions or bonuses, you may be fully able to afford a mortgage, but you may still find it difficult to get approved for one because the documentation proving your income does not fit the standard PAYE model.  Furthermore, if you have a bad credit history and you are self-employed, you could find yourself in even more of a frustrating position. Luckily, there are specialised mortgage products available to meet the needs of self-employed mortgage seekers and prospective self-employed borrowers with bad credit histories.

A self certification mortgage, also known as a 'self cert mortgage', allows you to declare your own income rather than having to provide documented proof to a self certification mortgage lender. Self certification lenders do not ask for pay stubs or bank account information to prove income.  Unfortunately, since the self certification mortgage system was abused in the years leading up to the credit crunch (with some unscrupulous brokers advising people to choose a self-cert mortgage product in order to borrow more than they would otherwise be eligible for), the lending criteria for these types of mortgage have become much stricter.  Therefore, assistance from a professional mortgage adviser if you have bad credit is more important than ever before.

If you are self certified and also have bad credit, the best option for you is to go to a mortgage adviser or broker who has access to a very large pool of available mortgage quotes.  Also, although it is possible to approach a lender directly for a self cert mortgage quote, many specialised mortgage products may only be available through a broker, so it may be worth it for you to get a free quote from an online mortgage broker.