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type of mortgages

When looking to buy your first home, there are lots of things to consider, including getting legal advice, arranging a solicitor or conveyancer, dealing with the seller, negotiating, surveys and much more. On top of this you’ve probably spent months viewing properties and even longer saving for a deposit! So what now? Now that you have chosen your dream home, and done all the negotiating, you’re probably left trying to arrange your mortgage if not beforehand. The problem is however, for many first time buyers, they have very little experience when it comes to the process of purchasing their own home that they are unsure of what type of mortgage to get.

There are now so many different mortgages offered, and different interest offered by different banks, with a plethora of jargon and terms you may not understand that it can seem pretty daunting dealing with any mortgage lender. It can in fact take time to understand what a fixed rate it compared with an interest only, a tracker and so on. Your circumstances will often determine which mortgage is better suited to you, but it is still worth understanding all of the different types of mortgages before making your decision and of course it is always worth seeking legal advice if you are unsure or simply need clarification.

Essentially the main types of mortgages are repayment or interest-only. A repayment mortgage ensures that your mortgage is completely paid off in full by the end of the term and is often the more popular choice as it offers more security. However, the monthly mortgage payments tend to be much higher as you are covering both the main capital as well as the interest. On the other hand, an interest-only mortgage does exactly what it says – you pay only the interest each month. This makes the repayments much cheaper but the idea is that you invest the remainder of your cash into something which will generate enough to pay off the capital at the end of the term.

Unfortunately, the downside to this is that it can be very difficult to raise the amount of capital needed to pay off the entire mortgage at the end of the term, putting you at risk of losing your home. A quick property sale however, can help you avoid the consequences of losing your home. Due to what was considered irresponsible lending a few years ago, many people faced losing their home as their income was not enough to meet the repayments. As a result of this lending has become much stricter and it has now become much more difficult to get an interest-only mortgage. They are usually only suited to people who are expecting an inheritance or large amount of money in the future, or perhaps to people with an uneven income so they can pay off the capital as and when they can. Therefore it is more likely that you will be offered a repayment mortgage, which offers you much more security for the future.

by Cormac Henderson

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