A mortgage is a loan taken out to buy property or land. The loan is 'secured' against the value of your home until it's paid off.
There are two main ways to repay a mortgage, here we explain each:
Some of the things to consider when choosing the repayment method for your mortgage:
Mr Mortgages will advise you based on your circumstances, attitude to risk and other factors what the best method or repaying your mortgage will be.
There are several different types of product available. Here is a brief explanation on the main ones
The interest rate remains the same throughout the period of the deal – typically one to five years, though it is possible to get ten year fixed rates. If you opt for a fixed-rate, you'll have the security of knowing exactly how much your mortgage will cost you for a set period of time.
You can calculate how much your mortgage is going to cost by using our mortgage calculator.
Advantages
Your mortgage payments will remain the same, even if interest rates changed. This makes it great for budgeting.
Disadvantages
You are tied in for the length of the deal, so if interest rates fall you can't take advantage of them. For example, if you opt for a five year fixed-rate deal, you will be tied in until the fixed term ends. If you want to get out of the mortgage before then, you'll be charged a hefty penalty – often thousands of pounds.
So before you apply for a fixed rate mortgage, think about how long you are happy to be locked in for.
The interest rate on a tracker mortgage is linked to the Bank of England base rate or maybe some other rate like the specific bank's base rate. So if the base rate changes, your mortgage rate will change.
As with fixed rate mortgages, trackers are available over different terms: most commonly two or five years. With these deals, you'll be charged a penalty if you want to get out of the mortgage during the term.
You can also get lifetime, or term, trackers and these are often completely penalty free so they are very flexible and can be a great option if you don't want to be tied into your mortgage.
Advantages
If interest rates drop, your payment will drop in accordance with the rate it is linked to
Although trackers are variable rate mortgages, it's easy to understand what rate you'll be paying because they are directly linked to the base rate. Therefore, the rate, and your monthly payments, will only change if the Bank of England or bank changes it's base rate.
Disadvantages
You don't have the same security with a tracker that you get with a fixed mortgage because the rate is variable. This means you have to be prepared for the fact that your monthly repayments could go up – and it's really important to make sure you'll be able to still afford your mortgage if this happens. If money is tight and you need to budget carefully, a fixed rate mortgage will probably be a better option.
Trackers aren't the only type of variable mortgage. Discounts are another. However, unlike trackers the interest rate isn't linked to the Bank of England base rate. Instead, it's linked to the lender's standard variable rate (SVR) and this is a significant difference because lenders can change their SVR even if there has been no change in the base rate.
Discount mortgages are available over different terms – typically one to five years – and as with trackers and fixed rate deals you will probably be charged a penalty if you want to get out of the deal during the term.
Mr Mortgages will advise you on the most suitable product based on your circumstances, current interest rates and many other factors, leave it to us to guide you.