Guide to mortgages

The different types of mortgages 

If you are buying or staying in your current home then you can choose from two types of mortgages:

1. Repayment mortgage

With a repayment mortgage, you pay part interest and part capital repayment to the lender each month and in this way the capital debt outstanding is reduced until the loan is repaid at the end of the term, providing all your repayments are made in full and on time.

2. Interest-only mortgage

With an interest-only mortgage, you make no capital repayments to the lender until the end of the term. Instead payments may be made into an investment designed to repay the loan at the end of the mortgage term. With this type of mortgage there is a risk that the value of the investment may not be enough to repay the debt. During the mortgage term, you pay only interest to the lender on the outstanding balance. 

Please note that Embrace Financial Services Ltd does not provide investment advice, and should you require such advice, we recommend that you contact an independent financial adviser. Neither Embrace Financial Services Ltd nor PRIMIS Mortgage Network are responsible for any advice you receive from a third party.

Some lenders are able to offer a combination of repayment and interest-only, which may be more suited to your individual circumstances.

If you are buying your property to rent out, then you will need a buy to let mortgage.

Different types of interest rates

Once you have decided whether you want a repayment or interest only mortgage, you need to decide the type of interest rate that is right for you. The possible types of interest rates are: standard variable, tracker, fixed, discount, flexible, offset and cashback.

Standard variable rate

With this type of mortgage your payments will go up or down when the lender's mortgage rate changes. Most standard variable rates tend to move in line with the Bank of England base rate, but there is sometimes a delay and there is no guarantee that the lender will pass on the full effect of the increase or decrease. When the interest rate goes up, the amount you have to pay also rises, and it falls when interest rates comes down.

A "tracker"

This is a variable rate where the interest rate is a set amount above, below or equal to the Bank of England or some other base rate and so always "tracks" changes in that rate. If you're on an introductory tracker rate, your mortgage will usually go onto a standard variable rate or another tracker rate at the end of the initial term.

Fixed rate

The mortgage interest rate is fixed for a specified number of years, so you know what your interest payments will be over that period. Following this period, the rate will usually revert to the lender's standard variable rate.

Discounted rate

A discounted rate gives you a set 'discount' off the lender's standard variable rate (SVR) for a specified period. For instance, if the discount was 1%, you will be charged 1% below the SVR for the period of the discount. When your discount mortgage deal comes to an end, your lender will typically transfer you automatically onto their standard variable rate.

Flexible mortgages

These give various benefits which usually include the ability to vary monthly payments in line with your changing circumstances. They may also allow you to take "payment holidays" and to borrow back any overpayment you have made. Because of their flexible nature and the variety of schemes available, it is not possible to give a full description. However, your mortgage adviser will provide more detail if you are interested in this type of loan.

Offset mortgage

This is a flexible mortgage linked to your savings or current account. With this type of mortgage, you are only charged interest on the net amount you owe the lender, after offsetting any savings or current account balances against the amount of your mortgage.

Cashback

Some loans offer a lump sum which is paid out following completion, with a mortgage charged at the lender's standard variable rate. Smaller cashbacks may be offered with reduced rates and other incentives as a combination package. When the initial mortgage deal comes to an end, your mortgage will usually go onto the lender's standard variable rate.

Please note that some mortgage schemes may have arrangement fees when they are set up, and have early repayment charges if they are redeemed, either partially or fully, within a specified period of time.

What is APRC?

All lenders have to quote an Annual Percentage Rate of Charge (APRC) in addition to their standard interest rate. This is to help you compare different schemes. The APRC is the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit. 

Repayment periods

Most mortgages are for 25 years. However, some lenders will allow mortgages of up to 30 years or may ask you to have a shorter term, for example 20 years. The mortgage length may affect your monthly mortgage repayments.

Take a look at our repayment calculator to see how much a mortgage could cost you. This is measured depending on how much the house you are wanting to buy is, the deposit you have available, the interest rate and the repayment length.

Remortgages

Remortgaging could give you the flexibility to change your mortgage as your lifestyle changes. Some of the reasons why you might wish to remortgage are:

• Remortgaging could give you the opportunity to restructure an existing debt to suit your current circumstances
• When your current mortgage deal comes to an end we can see how your current deal compares to other products on offer - you might save money by remortgaging.

Whatever the reason, there could be advantages to be had by switching mortgages. But with so many mortgage products available, how can you be sure you’re getting the right deal?

That’s where our partners Embrace Financial Services' mortgage advisers can help: Call free on 0800 470 1182^{^}  to talk to a qualified mortgage adviser for no obligation, professional remortgage advice.

^Calls may be recorded and/or monitored for training and/or data protection purposes.

Buy to Let mortgages

A buy to let mortgage is for those who wish to purchase a property with the sole intention of letting it out to tenants. Whether you are a first time landlord or an investor looking to expand your portfolio of properties to let, our partners Embrace Financial Services can assist.

• The mortgage advisers have access to a comprehensive range of buy to let mortgages from across the market

• The Embrace Financial Services advisers can answer your buy to let mortgage questions in a straightforward and comprehensive manner, book an appointment today to talk to their qualified mortgage advisers.

^Calls may be recorded and/or monitored for training and/or data protection purposes. Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority.

Mortgage Guarantee Scheme

The government has made available a mortgage guarantee scheme to buyers across the UK.

• It’s available from April 2021 and ends in December 2023
• Applies to first time buyers and existing homeowners
• Enables the purchase of a new build or older property, provided its valued under £600,000
• Requires a deposit of just 5% of the value of the property, provided the remaining 95% is secured through a mortgage loan from a lender
• Not all lenders are offering the scheme but those that do, are being incentivised to take part through a government guarantee