Mortgages

What types of mortgage are there?

The type of mortgage you choose may depend on:

  • your circumstances;
  • your loan to value ratio; and
  • your attitude to risk.

Repayment or Interest-only
Let’s get one thing straight. Just because a mortgage describes itself as “interest only” it does not mean that you will be let off repaying the capital! The expression simply means that your monthly payments do not go towards paying off the outstanding loan – just the interest on it.

Accordingly, an interest-only mortgage may mean lower monthly repayments than a repayment product. But on the other hand, you may have to make other payments into an investment vehicle of some kind, designed to clear the outstanding loan when the mortgage comes to an end.

Repayment mortgages may be available for long terms. The exact length may vary but a 25 year term may be typical.

When you make your choice between a repayment or an interest-only mortgage, your Mortgage Adviser may help you consider the issue of risk. With a repayment mortgage there is little risk. As long as you make every payment, the mortgage will be cleared by the end of the term.

On the other hand with an interest-only mortgage you have to rely on the performance of your investments to clear your mortgage balance. So if times are good you may end up with a surplus. But if times are not so good, you may end up with a deficit.

A flexible approach
In recent years mortgage lenders have listened to the needs of their customers and come up with the concept of a flexible mortgage. This is essentially a repayment product which allows you, under certain prearranged conditions, to make higher or lower contributions according to your circumstances.

So if you have a windfall or inherit some money, you may choose to pay it into your mortgage and reduce the term and the amount of interest you may pay overall. On the other hand, if you lose your job or suffer another kind of financial loss, you may be able to defer or reduce your monthly payments.

The offset option
An offset mortgage looks at your savings and borrowings with a particular lender, and offsets the interest you may have earned on one against the interest you would have paid on the other. However, this may not be suitable for those who may be tempted to ‘dip’ into their savings.

Mortgage Advice Centre can offer you a wide range of mortgage products. By listening to your needs and aspirations for the future, we can help you to find a mortgage to suit you.