As soon as you begin shopping round for a mortgage, you’ll soon realise that there are far more types of mortgages out there than you initially imagined. It can be extremely difficult to pick the correct one for your circumstances, not least because picking a mortgage will have huge financial implications further down the line. So, to help navigate this problem, in this article, the team at Barnes of Lincoln are on hand to break down the main types of mortgages.
What is a mortgage?
Let’s start simply. In the most basic sense, a mortgage works in the following way: you borrow money in order to buy a particular property and, upon doing so, you will start to pay that loan back in smaller, more manageable chunks, with interest on top, too.
Repayment mortgages are relatively straightforward. With these, you will pay back some of the money that you borrowed plus some interest in monthly installments. This is usually over a period of around 25 years.
Obviously, it’s likely that before that time is up, you could well have moved again. In which case, you might be able to move that mortgage over to your new home. This is called ‘porting’ your mortgage. Alternatively, you can pay off your original loan and get a new one.
Fixed rate mortgages
Particularly popular with first time buyers, fixed rate mortgages offer stability in the sense that you will be paying a fixed rate each month, regardless of whether interest rates fluctuate during that time. Although this sounds appealing, it also means you will be stuck on that rate if other mortgage rates drop, so in that sense, there is some risk involved.
Cashback mortgages might, on the face of it, seem more appealing than some of the other options, primarily because the lender gives you a percentage of the loan back right at the beginning. You should be wary of this sort of incentivisation, though, as the interest rate is likely to be much higher than other mortgages.
Variable rate mortgages
Unlike fixed rate mortgages, variable rate ones come with an interest rate which fluctuates in accordance with mortgage rates. So, if you’re a buyer and think that mortgage rates might be heading south, this is an attractive option.
Interest only mortgages
With these mortgages, you merely pay off the interest of your loan on a monthly basis, leaving the loan itself to be paid off the end. The thought here is that, because you’re paying less each month than a traditional loan, you can save more, so by the time you’ve reached the end of your mortgage period, you can pay the whole loan off.
Barnes of Lincoln are proud to be a leading home removal company for customers in Lincoln, Newark and beyond. Our expert team of movers will take care of all the heavy lifting, and will work diligently to ensure the safest possible journey for all of your goods and belongings. We are on hand to provide any advice you might need to help make your move as stress-free as possible, so don’t hesitate to get in touch with our friendly team today to discuss your move.