The Different Types of Mortgages Explained

Mortgage Advice Covering The Different Types of Mortgages

Whether you happen to be a First Time Buyer in Halifax hoping to find your footing on the property ladder, or you are currently Moving House in Halifax, it will become apparent soon enough that there are many different types of mortgages for customers to utilise.

There will be some options that are more popular than others, whilst some may be less common to come across. We have put together a comprehensive list of the different mortgage types we come across the most.

You can watch many more Helpful Mortgage Guides on moneymanTV here or go directly to our “Mortgages Explained” YouTube playlist here.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage allows for a customer to keep their mortgage payments consistent for a that your mortgage payments are going to remain consistent for a chosen period of time.

You have full control over the length of time in which you can fix your payments for, with people typically choosing 2, 3 or 5 year fixed rates, though possibly longer.

Regardless of any changes to the economy, inflation or interest rates, you can stay comfortable in your home knowing that your mortgage, arguably your biggest ever financial commitments, will stay the same for your fixed period.

What is a Fixed-Rate Mortgage? | MoneymanTV

What is a Tracker Mortgage?

A tracker mortgage is where the interest-rate of your mortgage will follow along with the Bank of England’s base rate.

To simplify this for you, the mortgage lender that you end up with will not be the one to choose your interest-rate, and you won’t be deciding that either.

Instead, the interest-rate on your mortgage will be set at a percentage above the Bank of England base rate. For example, if the base rate is 1% and your mortgage is tracking at 1% above base rate, you will be paying a rate of 2%.

What is a Tracker Mortgage? | MoneymanTV

What is a Repayment Mortgage?

A repayment mortgage is the standard type of mortgage you will come across, paying back both a combination of interest and capital each month.

So long as you continue paying your mortgage per month, for the duration of your mortgage term, you will be guaranteed to have paid off your mortgage balance in full by the end of your term, owning the property.

This is all considered to be the most risk-free way to pay back the capital on your mortgage balance. In the early stages of your mortgage term, you’ll mainly be paying back the interest, with your balance reducing slowly, especially with a 25-30 year term.

Your mortgage will alter slightly towards the last ten years or so, as you will be paying off much more capital from your balance than you will be with interest, meaning your balance will come down a lot quicker.

What is Repayment Mortgage? | MoneymanTV

What is an Interest-Only Mortgage?

Though you will see a lot of modern buy-to-let mortgages being set up as interest-only mortgages, it is a lot more difficult to obtain a residential interest-only mortgage.

It is not entirely impossible, though it is a lot harder to find these, as mortgage lenders may not offer these to customers.

They do become helpful though in relevant situations, such as potentially downsizing when you are only, or if you have external investments you can use to pay back the capital on the mortgage.

There are much stricter rules with interest-only mortgage products these days, with the loan-to-values on these being much lower than they would be in the past.

What is an Interest-Only Mortgage? | MoneymanTV

What is an Offset Mortgage?

By taking out an offset mortgage, your mortgage lender will be assigning a savings account to you, to run alongside your mortgage term.

The way that this works is that if you were to have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you would only be paying interest on the difference between that, which would be £80,000.

This is often considered to be a very efficient way of managing your money, especially if you are paying higher rates of tax.

What is an Offset Mortgage? | MoneymanTV

A Guide to Remortgages in Halifax: Top Reasons to Consider

The mortgage journey can come with its ups and downs, however, it can be fulfilling. Going through the process turn into one of the following positive outcomes:

  • You are now settled in your dream property, and are maybe looking to start a family.
  • A step up to progressing further up the property ladder.
  • Getting an extra income through an investment purchase

Whatever route you go down, in the future, you will eventually come to the end of your mortgage term. You can either sell up and upsize/downsize into a new property.

Remortgage is a popular option for customers who are looking to sell their portfolio to the tenant or another buyer and look at other opportunities.

What Is Remortgage?

In the case where you use the proceeds from a new mortgage to pay off a pre-existing mortgage, this is a Remortgage. It can be beneficial when you are looking to find lower interest rates and better mortgage terms.

With the 20 years or so experience with Malcolm Davidson (Director / Mortgage Advisor), we felt it would be helpful to collate all the options you can choose from when it comes to taking out a Remortgage and create a guide.

Remortgage For Better Interest Rates

Typically, your initial mortgage deal will usually last 2-5 years and include low fixed rate or possibly discounted rates. You might get placed on a tracker mortgage which means your mortgage will follow the Bank of England’s base rate.

It’s likely you will get moved along to the lenders Standard Variable Rate (SVR) as soon as your term ends. This type of mortgage has an interest rate that can fluctuate because it depends on what the lender wishes to charge.

Unlike a tracker mortgage, this doesn’t follow the Bank of England’s base rate. Many choose to look at Remortgaging for better rates to save money on their monthly payments due because SVR and tracker mortgages are a more expensive route to choose.

Remortgage For Home Improvements

You might find that 2-5 years into occupying your home that something isn’t quite right. It could be you are wanting an extra room/larger living space for your kids/belongings, a new kitchen, a new office or loft conversion.

Instead of moving into a larger house, it might be best you look into advice in order to release equity so you can fund any renovation costs. Obtaining planning permission and funding can seem like a nerve-wracking concept, however, it can be a less stressful option compared to finding a new home.

Furthermore, it can reap rewards when going through the process of a development in your current home and can pay off in the future with a potential increase in the value of the property if you look to sell up or rent out in the future because of the expansion of space.

Remortgage For Changes to Your Term

Another reason why some may look into Remortgage in Halifax is for a better mortgage term through reducing the length or switching to a more flexible product.

Even though reducing the size of your term can mean you aren’t tied down to your term for as long, it does mean your monthly repayments will be a lot higher. The longer your term, the lower the payments will be over time.

In some cases, you might look into getting a better mortgage term by looking into a more flexible mortgage term when they remortgage. This option can be appealing to many homeowners because of the benefits like having the option to overpay.

Furthermore, homeowners also have the ability to move the same mortgage and rates over to another property if they decide to move at any point in the future. As mentioned, you are able to overpay which means you can pay off your mortgage as quickly as you’d like.

Despite a flexible mortgage sounding a lot more appealing, they usually come in the form of a tracker mortgage. Again, this type of mortgage follows the Bank of England base rate which means your payments may change depending on interest, this can make them a little unreliable.

Equity Release

There is a level of equity in everyone’s properties. This is summed up by finding out the difference between the remaining total on the mortgage, and the current value of the property.

As mentioned previously, you do have the choice to use the equity to fund home improvements, however, there is a number of options out there for you.

Other options you could use the equity to cover long-term care costs, so cover their income, to pay off an interest-only mortgage, or to have free spending money.

Sometimes, Buy to Let landlords will use Equity Release so they can cover their deposit for buying another property in the future as an addition to their portfolio.

Remortgage to Consolidate Debt

Using Equity Release in order to pay off any unsecured debts that you may have accumulated over time is a more popular options people go for.

Debt Consolidation is based on your credit rating as well as amount on how much you’re entitled to and the value of the property. Furthermore, this could result in the limitation of the amount you can have.

In order to pay off your previous mortgage and your debts, it’s required that you borrow more than your outstanding mortgage amount. Either way, your monthly repayments will most likely be higher.

As much as this isn’t the most perfect situation, it’s very helpful that the option is out there should an unfortunate situation arises.

There is options out there is you do have a significantly damaged credit rating, however, this situation will not be as simple. Therefore, it’s important that you seek Specialist Remortgage Advice in Halifax before progressing.

Even doing this doesn’t mean it’s guaranteed. Before consolidating and securing any debts again your home, you must seek Mortgage Advice in Halifax.

Experienced Mortgage Advisors in Halifax – Get in Touch Today

If you are coming to the end of your term and are wanting to look into the option available for Remortgaging, get in touch with an open and honest Mortgage Broker in Halifax.

Having an advisor by your side can allow you to discuss your situation and future in order to get the best plan of action when going forward on your mortgage journey. We always work hard to make this process quick and smooth.

Product Transfer V Remortgage Advice in Halifax

What is a product transfer?

When your introductory mortgage deal comes to an end your mortgage lender may offer you a new deal to stay with them, this is known as a product transfer.

Are you rewarded for being loyal?

Unfortunately, lenders do not always reward your loyalty and the offer they make you may not be competitive with deals you could get elsewhere. Even more annoyingly, these product transfer rates are not as good as the deal they offer new customers either!

Tempted by an online switch?

Whilst swapping to a new deal with your current lender may well be fairly easy online, it is always in your interest to see what other deals you may be eligible for. Lenders will also tempt you to effect a new deal online without taking advice.

This can be really dangerous because if you do this without advice you are waving goodbye to all the valuable consumer protection you would otherwise have benefitted from.

You’ll be opting out of advice

We have seen numerous examples of customers affecting these “follow-on” deals and locking themselves into an inappropriate deal. Because they opted out of advice then they have waived a lot of their rights in terms of making a complaint.

We did have a recent case where a customer who was pregnant did this and was declined for a small further advance to fund some necessary home improvements a few months later. She then had to pay a hefty early repayment charge to swap to a new lender who would grant her the additional funds.

Always, always, always get mortgage advice

If we think a product transfer is the most suitable deal for you we will recommend that as a course of action for you and if we arrange the mortgage for you as a mortgage broker then all the regulation and consumer protection will apply.

In short, even if your requirement seems straightforward we recommend you always take advice – a second opinion costs nothing and making a mistake when taking a new product can be costly.

The remortgage market is highly competitive and savings can generally be made by searching the market for a new deal. This is why it might be within your best interests to speak to a Remortgage Advisor in Halifax. they will support you through the whole remortgage process and help you find that 1/1000 amazing mortgage deal!

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