The Different Types of Mortgages

Mortgages aren’t one size fits all, there are many different types of mortgages out there to suit each person’s circumstances. This guide will list some of the different mortgages and explain what they mean, it might even help you decide what kind of mortgage you need.

Fixed Rate Mortgage

A fixed rate mortgage means you pay the same interest rate, even if the interest rates change elsewhere. The fixed rate of interest will last for the first few years of the mortgage (anywhere between 2 and 5 years), and then once that period is over the interest rate will change to the lender’s standard variable rate.

A fixed rate mortgage is great for knowing exactly what you’ll be paying each month, however one possible downside is that interest rates may go down but you’ll be stuck paying more than you could be.

Despite the one possible downside, this is one of the most common mortgages that homeowners choose. A 2019 survey conducted by Which found that more than 60% of people were choosing this type of mortgage.

Variable Rate Mortgage/Tracker Mortgage

The opposite of a fixed rate, a variable rate mortgage’s interest payments will change as the interest rate goes up and down.

Guarantor Mortgage

A guarantor mortgage means that a third person, usually a parent or other relative, will act as a guarantor and make monthly repayments on your behalf if for some reason you are unable to, due to a change in circumstances and so on.

If you are lucky enough to have a good relationship with a relative that’s willing and has the funds to help you with this, it’s great for helping you get on the property ladder and could be an alternative to a bad credit mortgage. But there are also other options if you do have bad credit, so speak to a mortgage advisor.

Joint Mortgage and Tenants in Common

You can buy with a partner, relative or friends. There are multiple ways to buy a property with another person.

With a joint mortgage, also known as joint tenants, you have an equal share in the whole property. One thing to note on this type of mortgage is that you cannot pass your share of the property onto someone else in your will, and if you die, the property automatically goes to the other owners.

With tenants in common, you can own different shares of the house and pass your share on in your will. This could be useful for people who earn different levels of salary but still want to team up to buy a house.

You can also change from sole ownership to one of these types of mortgages or between the two types. For example, a partner might move in and you change from sole ownership to tenants in common, then you might get married and change to joint tenants to have equal rights to the entire property.

On the flip side, if you get divorced or separate you can change from joint tenants to tenants in common.

If you do move in with someone, it might be wise to discuss setting up these types of arrangement officially, otherwise you could be paying into a mortgage, separate and be left with no legal rights to the property.

Joint mortgages could also be used similar to a guarantor mortgage, where a parent or relative can enter into a joint mortgage with you to help you get on the property ladder.

Flexible Mortgage

A flexible mortgage is usually more expensive than a regular mortgage, but it allows you to overpay or underpay on your monthly repayments (which are usually fixed on other mortgage types). You can even take a break from making a payment. You’re also able to pay off the entire mortgage early if you wish (other mortgages usually charge you for doing this). Paying it off early means you save money by not letting interest build up with every monthly payment.

Interest-only Mortgage

An interest-only mortgage means that you only pay the interest for each month’s repayment and not the actual monthly payment. This type of mortgage is intended for you to save up over the term and pay the full mortgage at the end.

Mortgage Advice

Now you should be well versed in the types of mortgage that come up most commonly, but if you’re still unsure, make speaking to a professional mortgage advisor a priority. Never be afraid to ask questions.

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