If you are looking at moving home in Coventry, or are new to the mortgage world as a first time buyer in Coventry, you will find that there is a large range of types of mortgages out there. You may be aware of the more popular ones and find that some are not offered by every lender.
Below is a list of the most common mortgage types that you will encounter. As well as this, you will find a YouTube video for each mortgage type. You can find these videos from our YouTube channel MoneymanTV which are there to watch under our Mortgages Explain YouTube playlist here.
A fixed rate mortgage locks in the mortgage payments making them consistent from a set period of time and results in customers’ monthly payments staying the same every month.
The amount of time you want to fix in your payments for is entirely up to you, however, the most common ones are 2,3 or 5 year fixed rates but you can have even longer ones.
Whatever changes may arise in the economy whether it be inflation or interest rates, you can rest assured that your mortgage, being a large financial expenditure, will remain the same for your fixed period.
A mortgage with an interest rate that follows the Bank of England’s base rate is known as a tracker mortgage.
To break it down, the mortgage lender that you would be with will not be choosing your interest rate, and you won’t be deciding that either.
Rather, the interest rate on your mortgage will be set at a percentage above the Bank of England base rate. For instance, if the base rate is 1% and your mortgage is tracking at 1% above the base rate, meaning you will be paying a rate of 2%.
Known as the standard type of mortgage, a repayment mortgage is when you pay back both a combination of interest and capital each month.
Considering that you continue paying your mortgage per month, for the full length of your mortgage term, you will end up paying off your mortgage balance fully by the end of your term, owning your property.
This is known to be the most risk-free option to pay back the capital on your mortgage balance. At the beginning of your mortgage term, the main thing you will be paying back is the interest, with your balance slowly decreasing, which is especially the case with a 25-30 year term.
In the last 10 years of your term, your mortgage will change slightly because you will be paying off much more capital from your balance compared to the interest, meaning your balance will decrease faster.
You may find that a lot of modern buy to let mortgages are set up as interest-only mortgage. It is more of a challenge to get a residential interest-only mortgage.
Despite this, it is still a possibility, but it is quite difficult to come across a mortgage lender that will offer these to customers.
It’s more about the situation you are in for example if you are potentially downsizing when you are on your own, or if you have external investments you can use to pay back the capital on the mortgage.
When it comes to taking out an offset mortgage, your mortgage lender will set up a savings account for you which will go alongside your mortgage term.
An example of this is if you were to have a mortgage balance of £1000,000 and £30,000 is deposited into your savings account, you will be required to pay interest on the difference between the two amounts meaning it could be £80,000.
This is often seen as a very efficient way of managing your money, in particular, if you are paying higher rates of tax.
Last Edited: 07/02/2023