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A Mortgage is a large loan repaid over a long term. It is a loan used exclusively to purchase property. The loan is usually upon the actual property it is being used to purchase. That means should you fail to make repayments on such a loan your home could be at risk. The term that mortgages usually for is 25 years. Your individual circumstances and credit rating will influence any potential lender.
Different Types of UK Mortgages
Companies use different products as a way of enticing you to obtain a mortgage through them. There are three basic types of UK mortgage: Variable Rate Mortgage, Fixed Rate Mortgage and Capped Rate Mortgage
Variable Rate Mortgages UK
With this type of mortgage the interest rate rises and falls as it follows the Bank of England base rate. Variations can be dramatic but if the Bank of England base rate remains low for a long period of time then this type of mortgage could be the one to have, however the base rate cannot be predicted for months ahead.
Capped Rate UK Mortgages
A Capped Rate Mortgage means that there is a limit (in other words a cap) on the amount of interest you will be expected to pay over a specified period of time. Should the variable rate rise higher than the capped rate then you will benefit by only having to pay the pre determined capped rate. If the Bank of England variable rate falls lower than the capped rate contracted then you would benefit as you would pay interest at that lower rate. Whilst you benefit from falling interest rates you are protected from any high rate rises, however you should be aware that it is unusual for the variable rate to go above the capped rate for any considerable length of time. You will usually find that you have to pay a fee for your lender to organise one of these loans for you.
Fixed Rate UK Mortgages
The interest Rate on this sort of mortgage is set at a fixed rate for the entire period or term of the loan. If UK interest rates fall below this agreed rate then you will not benefit ,as you would still have to pay interest at the higher pre arranged contracted rate. The advantage of the UK fixed rate mortgage, is that it enables the consumer to know the exact amount they will be paying for the loan during its entire duration. Borrowers are tied into these sort of mortgages for a fixed period and should they wish to redeem the mortgage within the fixed rate period then fees and charges will be incurred.
Interest Rates and Mortgage Payments
The Bank of England sets the Interest Base Rate, this Base Rate can rise and fall very rapidly. England's Monetary Policy Committee announces any changes to the rate at monthly meetings. This Standard base rate is used for most financial products including UK Mortgages. Mortgage lenders will of course want to make their own profit so they will then add their own interest rate on the top of this standard base rate. They look at this as their payment for providing you the service of borrowing money as a mortgage. Mortgage lenders charges can vary and different mortgage products can be found from lender to lender. Fluctuations in interest base rates can affect mortgage payments in different ways, depending on which mortgage products you have contracted into.
Adverse Credit UK Mortgages
There are mortgages that are specifically tailored to offer a service to people who have an adverse, bad credit or poor credit rating. Otherwise known as Bad Credit Mortgages, Non Status Mortgages or Self Cert Mortgages these type of mortgages will be offered to you if you are unable to get a mortgage due to such things as CCJ's (county court judgements) or bankruptcy.
Repayments may be higher than other types of mortgages due to the fact that you will be considered a greater risk to the lender, it could be that your past history shows that you was a late payer or didn't make payments at all on previous loans. There are Online Mortgage Providers who specialise in such mortgages, but you should always be aware that it will be more costly to you due to APR rates being higher on these types of mortgages. Should you obtain one of these mortgages and not default at all on the repayments then this alone can help to improve your credit rating for the future. It makes sense to be aware what your repayments will be and before signing on the dotted line be sure you can actually afford to make those repayments.
Changing to a Different Mortgage Provider
With most mortgages you are tied into a particular product for a length of time (usually two to three years) at the end of this time you can in fact move to another lender and opt for a different product, you can even stay with the same lender and use one of their other mortgage products. This means that you can save on your repayments which will save you money on the full term of your mortgage. Competition is strong as mortgage providers offer incentive schemes incorporating low and discounted rates. It is always worth shopping around when you are looking for a mortgage as their are saving to be had.