Mortgages

A mortgage is probably the biggest debt you will incur in your lifetime. A mortgage is taken out with the sole intention of buying a new home and is usually repayable over a period of about 25 years.

Keywords: Base Rate | Mortgage Term | Mortgage Deed | Overpayments | Underpayments

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With a mortgage your home is held as a guarantee on the repayments and if you fail to make the repayments then eventually your home may be repossessed. There are many different types and reasons for mortgages such as buy to let mortgages, first time buyer mortgages and self employed mortgages, but generally there are three main types of mortgage.

flexible rate mortgages

With a variable rate mortgage the rate of interest on your repayments will go up and down with the Bank of England Base Rate. If the current base rate is low or falling then this is probably the best type to have as your repayments will stay low or decrease. However if the base rate rises then your repayments will do the same.

Capped rate mortgages

With a capped rate mortgage your repayment rate will not go above a certain level. If the base rate falls then your repayment rate will decrease, however if the base rate rises above the agreed cap then your repayments will not rise. This gives you the security of knowing the maximum amount you will have to pay back each month.

Fixed rate mortgages

When a fixed rate mortgage is arranged a fixed interest rate is agreed and stays the same through the whole term. With a fixed rate mortgage your repayments will stay the same each month, neither rising or falling with the base rate. This type of mortgage is best when the interest rate is rising and worse if it is falling. With a fixed rate mortgage comes the security of knowing exactly how much your repayments will be.