Mortgages
RepaymentThe most common type of mortgage is the repayment mortgage. Offering the greatest simplicity, your monthly repayments cover both the capital and the interest on the loan, so that at the end of the term you have nothing more to pay.
No other investments are required, but it makes sense for you to consider taking out life assuance in case you die before the mortgage is paid.
Interest-only
Your monthly repayments cover the interest - not the capital - of your home loan. The full amount of the loan is repaid by putting additional funds in long-term investments, many of which currently come with tax advantages.
Unlike a repayment mortgage, the amount of debt does not reduce over time and there is no guarantee that your chosen investment will cover the cost at the end of the term. However, you can normally top up your investments if you think this will be the case. There are several options to repay the capital of your home loan:
Variable rate mortgage
This simple home loan sets the interest rate according to the Lender's Standard Variable Rate (SVR).
There are normally no early repayment charges on variable rate loans, which is worth considering if you're thinking of paying off your mortgage early. However, budgeting for the future can be difficult, with unpredictable interest rate movements, and your repayments could rise rapidly if rates go up.
Discount rate mortgage
We can often help you reduce your expenses in the first few years of your mortgage by setting your interest rate below our Standard Variable Rate (SVR). Your repayments are still governed by rate changes but they are always relative to your discounted rate.
This type of mortgage is likely to be especially appealing if you're a first-time buyer, as it helps you free up money for other expenses in the early years. However, once the discounted period is over, the rate will revert back our SVR for the remaining term of the mortgage. This will cause monthly repayments to change. You may be able to take a new deal from the lender at this point - though this could be subject to other rate conditions and you may have to pay an early repayment charge. A reservation fee may also apply.
Base rate tracker mortgage
A base rate mortgage tracks an independently set interest rate, such as The Bank of England Base Rate. The benefit of a tracker mortgage is that you are guaranteed that any falls in interest rates will be passed on to you, usually from the beginning of the month after the rate change. However, any rises in rates are also guaranteed to be passed on to you.
Fixed rate mortgage
Your interest payments are fixed at a specified level for the first few years, allowing you to budget more effectively at the start of your mortgage. When the fixed-rate period is over, your payments change to the lender's Standard Variable Rate (SVR) for the remaining term of the mortgage. You may be able to take a new deal from the lender at this point - though this could be subject to other rate conditions and you may have to pay an early repayment charge. A reservation fee may also apply.
Flexible mortgage
A flexible mortgage gives you the flexibility to overpay, underpay and offset your mortgage repayments.