Mortgages

What types of mortgages are there?

There are two main types of mortgage: repayment or interest-only.

Repayment Mortgages

With this mortgage your monthly payment includes both interest on the mortgage and a repayment of some of the amount you borrowed (the capital). This has the advantage that over time the capital gradually decreases, thereby reducing the amount of interest, so your payments start to pay off more capital. The advantage of repayment mortgages is your debt will be cleared by the end of the mortgage term, so long as you maintain your repayments.

Interest-only mortgages

With these mortgages, your monthly payments only cover the interest, and you are not paying anything off the capital. You need some other way to repay the capital in full at the end of the mortgage term, such as an inheritance. Most borrowers resolve this by making regular payments into endowment policies, Individual Savings Accounts (ISA's), pension plans etc. The advantage of interest-only mortgages is that your monthly repayments can be far less. However, the disadvantage is that you still need the money to repay the capital at the end of the mortgage.

Mortgage rate options

There are many different interest rates which you may find as options, and you need to take advice on which is most suitable for you. They include:

• Standard Variable Rate (SVR) - the lender's basic lending rate, which follows fluctuations in the Bank of England Base Rate and market conditions.
• Tracker Rates - these track a rate set by an independent authority - usually the Bank of England.
• Discount Rates - these mortgages follow the SVR or a tracker rate but at a set discount for a period of time. The shorter the discount period, the greater the discount.
• Fixed Rates give a rate fixed for a given period - normally two to five years.
• Capped Rate mortgages prevent rates rising above a certain agreed level.
• Cashback mortgages give you a lump sum of cash at the start of your mortgage, typically 5%-6% of the mortgage.

Other mortgages

Other mortgages are more flexible, such as current account mortgages (CAM) or offset mortgages. This brings your current account and/or savings account together with your mortgage, and you offset your credit balance against the mortgage and reduce your overall debt so you pay less interest.

Shopping around

Precisely because there is such a wide range of mortgages available, it makes sense to shop around. Explore Finance caters for most circumstances, and offers a wide variety of mortgage products. We're extremely competitive, so apply online for a quote now.