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Mortgages - Top Level Guide

Mortgages 

A mortgage is basically any loan which is secured against property which you own. For most of us, a mortgage means a loan from a bank or building society which allows us to buy a house, flat or apartment, with the property itself as the security.

Your mortgage will probably be the biggest financial commitment you make so its worth understanding just what it is you're getting into. Here's where Moneyfacts.co.uk can help.

There are many different types of mortgages so choosing the right one can be tricky, for example:

• Do you go for a fixed rate mortgage or a variable rate mortgage?
• Would you benefit from a discounted rate mortgage?
• Would you be able to pay the mortgage off earlier with an offset mortgage or current account mortgage?
• As a first time buyer, where do you even start?

At its simplest, it can boil down to two main factors, affordability and attitude to risk:

Affordability

Fixed rate mortgages or discounted rate mortgages are good where money is a bit tight and budgeting is an important factor for you.

First time buyers can usually benefit from special offers to help keep the initial cost down.

Self certification mortgages are good for people who's income is a bit erratic, for example the self employed or have a large percentage of commission. They allow you to get the mortgage you want by declaring your income, but without absolute proof of what it is.

Attitude to Risk

A repayment mortgage (or capital & interest mortgage) is suitable if you want to be certain to repay your mortgage at the end of its term.  

An interest only mortgage won't pay off the loan itself, you need additional savings or investments to repay the lender when the loan is due.  

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• A fixed rate mortgage can provide certainty about your monthly repayments for a specified time either help with budgeting.
• With a variable rate mortgage the repayments will move with interest rate changes. A discounted variable rate mortgage is the same, but with a reduced interest rate in the early years.
• An offset mortgage gives you the chance to clear your debt sooner but you'll usually need to pay a slightly higher interest rate.
• A buy to let mortgage will help get you going if you're looking to develop your own property empire.

Flexible Mortgages

Flexible mortgages are just normal mortgages, but with a number of flexible features which allow you to react to life's ups and downs.  

• You can make overpayments when life's good to reduce your mortgage amount or build up some ‘credit'. 
• When money's a bit tighter, take a payment holiday, make underpayments or even withdraw some money from the account. Some accounts only let you make underpayments if you've previously overpaid.