Types of Mortgages

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Mortgage Glossary

Types of Mortgages

Let’s take it step by step! First, what is a mortgage? It is a secured loan against a property through the use of a legal instrument called mortgage. This involves a legal document which states the creditors’ or other party’s contractual rights to the property in case the conditions of the legal obligations are not kept by the borrower. But in everyday speech when we say ‘mortgage’, we usually refer to the loan a property buyer can get. The size and maturity of this loan, the interest rates and the repayment method depend on the type, as well as on the financial institution that provides it, and on the personal and financial circumstances of the debtor. Are you curious about the details? If yes, then go on!

Moreover, you can choose not only from many loan types, but also from many interest rate types as nowadays these are very flexible. You can choose stability, namely fixed rates for the whole repayment period, but these are more expensive, or more instability with lower costs and with variable interest rates. But there are mixed types as well. The borrower may also have the chance to decide on the frequency of the payments as well as the amount to be paid monthly or for any other time span. There might also be a possibility to change this predefined amount over time. So another benefit is the flexibility of mortgage repayments, as you might choose between the various methods ranging from regular or irregular repayments, to paying interest rates with or without repaying the capital. In the latter case capital is repaid only at maturity, and the loan is called investment-backed mortgage. The previous on the other hand is called an interest-only mortgage. More than this, mortgage loans have the lowest interest rates compared to other types of credits. Also, your monthly payments’ taxes are capable of being deducted during the interest-only period, so you will end up paying much lower amounts. Isn’t it great? You can save a lot of money! Moreover, with a mortgage loan you can easily manage to lower the duration of the repayment period therefore you can become free of all your debt in a shorter time than with other options.

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So when is such a possibility a good choice for you? First, if you have poor credit or unsatisfied County Court Judgements. Second, if you ever filed for bankruptcy, or this is the case in the present time, and you want to have a fresh start. Third, if you want to purchase ‘Council right to buy’ properties or those which you would like to let out for extra return. Fourth, if you are self-employed, and consequently it seems impossible for you to get a credit. Or, also if you just want to have a house instead of paying big amounts to landlords and you need a loan for this reason with favourable conditions.

The UK market is among the most innovative mortgage markets in the world. Moreover, the state interferes very rarely and because of this, but also thanked to the innovation and differentiation, new and new strategies were implemented by the various lenders who operate in the market. As you might know by now, mortgage loans are very flexible, therefore the amount charged by lenders for arranging a mortgage for you varies as well, as it might involve starting fees, closing fees, administration fees as well as mortgage insurance. UK lenders might also charge a valuation fee that is the cost of analysing the property to be sure it can cover the mortgage amount. But that’s it! From this on you can choose from the various possibilities of types, repayment methods and rates.

All in all, it is essential to have enough information about mortgages, as they seem to be an inevitable step for most of us to finance our own future property or physical residence. It’s true that you will have to pay the interest rates for a somehow long period of time, but this reflects the lender's risk, and it’s better anyway than paying large amounts for monthly rents. The keyword for mortgage loans is flexibility before all! These loans have a large variety of options, so you can easily find the right one for your own personal needs, depending on your specific financial circumstances. Don’t forget to analyse the offer as lenders might start with offering you a stimulating option to attract you! So be well-informed about the deal you make and make sure you choose the best possible option!