Different Types of Mortgage Explained

Variable Interest Mortgage

Monthly payments change as the base rate changes. This rate is set by the Bank of England. If they interest rate goes up so does your mortgage payments. Mortgage payments are based on the Standard Variable Rate (SVR),. Although this is closely linked to the Base rate set by the Bank of England SVR does vary from one lender to another. You should always look around at the different SVR on offer.

Fixed Rate Mortgage

The repayment amount is fixed for a number of years. This amount will not change even if the Bank of England Base rate goes up or down. The advantage of this kind of mortgage is that you know exactly what the monthly payments will be. A disadvantage is that if interest rates drop then you will not get the benefit. You will be locked into a higher rate of interest.

Capped Mortgage

This has elements of both Variable and Fixed Rate Mortgages. If the base rate drops you will benefit from some reduction in monthly repayments. If the Rate rises your repayment will not go up above a certain limit. This type of mortgage has a lot of appeal but lenders often charge a premium to give you this sort of mortgage.

Adverse Credit Mortgage

For people with a poor credit rating. There are now many lenders who specialise in adverse credit mortgages. But they will probably charge a premium interest rate and may require you to make mortgage indemnity payments. This is a form of insurance you pay so that if you fall significantly behind with your mortgage payments the lender is covered. It is an additional form of security for the lender, but not for you.

Joint Mortgage

This type of mortgage has become popular in recent years because of rising house prices and the difficulty for first time buyers. An important point to remember is that if you are buying with a partner but not married you are regarded legally as separate individuals. You should ensure that both names are on the title deeds.

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