Mortgage Types and Jargon Busting
Mortgage Types and Jargon Busting
Getting a mortgage is an overwhelming process at the best of times, without the added pressure of all the mortgage terms and jargon on top.
We have collated a jargon busting guide to help you throughout your mortgage process, along with an explanation of the different mortgage types that may be available to you.
What is a fixed rate mortgage?
A fixed rate mortgage is the most popular type of mortgage out there. You can have a fixed rate over a two, three or five year period and essentially, as the name suggests, your mortgage rate will be fixed for a certain period of time. This means you know exactly how much you will be paying towards your mortgage each month, for however long your term is, so you can budget accordingly.
What is a standard variable rate (SVR) mortgage?
An SVR usually comes into play when your fixed rate term ends. The SVR is essentially a rate set by your lender, so each rate will vary depending on the lender you took your mortgage out with initially. Generally, SVR’s are the most expensive mortgage rate on the market, so you need to try and avoid them if you can.
We aim to contact our clients six months before their initial mortgage term ends, whether that’s a fixed rate, a tracker or any of the other products that are available, so we can help them avoid paying more expensive rates than necessary.
What is a tracker rate mortgage?
Tracker rate mortgages are essentially based on the Bank of England base rate. If the base rate goes up, then your mortgage rate will too and if it goes down, your rate will decrease accordingly. Discounted rates work similarly to a tracker rate, but the difference is they are a discount off your lenders SVR.
What is an offset mortgage?
An offset mortgage tends to work well with people who have a certain amount of savings. These savings are then put into a bank account with the lender you have taken your mortgage out with and you can use any savings that are in the account to offset your mortgage balance.
For example, if you have a £200k mortgage and you had £100k in the lender’s offset account, you would only pay interest on the £100k in the bank account.
Capital repayment and interest only
A capital repayment mortgage is a guarantee that you will owe nothing and fully own your property at the end of the mortgage term – as long as you have kept up with your mortgage payments for the length of your mortgage.
With an interest only, you only pay the interest payments each month. This means, the amount you borrowed at the outset in order for you to purchase the property will still need to be paid once your mortgage term has ended.
Overpayments – the majority of mortgage lenders will allow you to make an overpayment equating to 10% of your mortgage balance each year. This can help reduce your interest payments over your mortgage term and shorten your mortgage repayment period overall.
Cashback – some lenders will offer a certain amount of cashback that is given to you on completion. This is usually used to help with the cost of fees associated with your property purchase.
Porting – if you are tied into a certain mortgage deal and will therefore suffer early repayment charges if you exit the mortgage agreement before the end of the term, some lenders will allow you to ‘port’ the mortgage to another property without any penalties.
The cost of a Mortgage Broker
We offer a free initial appointment to understand your needs and requirements for your mortgage. We also look at your income and expenditure to work out how much you can realistically afford for monthly mortgage payments, which is also free of charge.
Get in Touch
There really are no silly questions. Buying your first home or even moving home can be daunting, so it’s best to speak to an advisor who’ll be able to explain any jargon so you fully understand the mortgage process you’re about to embark on.
You can send us a request on our website using the short form and we’ll contact you within 24 hours to look at getting an appointment booked in.
Your property may be repossessed if you do not keep up repayments on your mortgage.