Discount, Capped, Cashback, First Time Buyers
Different Types of Mortgages
When it comes to buying a home, understanding the different types of mortgages available can be daunting. With a wide range of options to choose from, it can be challenging to know which one is right for you.
Discount Rate
A discount rate is a type of variable rate mortgage where the interest rate is set at a discount below a rate of interest, typically the lender’s Standard Variable Rate (SVR) for an initial period of time, typically two or three years.
The obvious benefit here is that the rate is lower, so your repayments will be cheaper.
However, if interest rates rise, you can expect your repayments to increase too.
You also need to be aware that lenders have differing SVRs, so you may need help in working out which discount deal is the most suitable and the most cost-effective option for you.
Capped Rate
A type of variable rate mortgage, but these have an interest rate ceiling, or cap, beyond which your payments can’t rise.
The interest rate is often higher than that available on other variable and fixed rate mortgages and the cap can be set quite high. However, it provides the certainty that your payments will not rise above a certain level.
A capped rate is normally only available for an introductory period, which can typically be from two to five years.
This type of mortgage may also have a minimum rate of interest that the lender will charge for a specified period. This is referred to as a ‘collar’.
Cashback Mortgage
This mortgage comes with a cash sum that’s paid to you once your purchase or remortgage has been completed and your mortgage is in place.
The amount you receive is normally expressed as a percentage of the amount you have borrowed, although it can be a fixed amount.
It’s important to be aware that this type of mortgage may not be offered at a competitive rate and might mean that you’ll be paying higher monthly payments as a result.
First Time Buyers
Buying your first home can be both an exciting and nerve-racking experience.
The exciting bit is having your own front door and space to call your own; the nerve-racking part can be finding somewhere you can afford, saving enough for the deposit, and getting a mortgage product that’s right for your financial circumstances.
Before you start looking for a property to buy, it makes sense to take advice.
We can help you work out how much you’re likely to be able to borrow and give you useful hints and tips that will help you prepare for the mortgage application process. We know what’s happening in the market, so we can help you make your mortgage application to the most appropriate lender when the time is right.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.