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Finance
Mortgages, pensions, loans, shares, savings |
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Types of Mortgage
Types of Mortgage
There are numerous types of mortgage available and the choices can sometimes be all too overwhelming. In this article I’ll be looking at the more familiar mortgage options.
What’s a ‘rate’?
The ‘rate’ usually refers to the rate of interest that you pay back on your mortgage. The rate is calculated as a percentage of the total amount that you owe and is affected by various market factors, including inflation.
Repayment Mortgage
The figure repaid each month consists of the amount of capital borrowed plus the accrued interest. This is usually the most common type of mortgage issued.
Endowment Mortgage
These mortgages have been in steady decline in recent years and are usually best avoided. The figure repaid each month is interest only and not any of the capital borrowed. The capital itself is repaid by an endowment policy which is based on savings invested by the lender. The total figure is not guaranteed.
Fixed Rate Mortgage
With this type of mortgage the interest rate remains the same (e.g. 4.5%) for a fixed term (2-5 years). The figure that you repay is also fixed (e.g. £825). At the end of the term the payments will increase according to the lender’s terms and conditions.
Variable Rate Mortgage
Here, the interest rate changes in accordance with market conditions such as inflation. So every time the interest rate changes, your monthly repayments will go up or down accordingly. You need to be sure that you can afford to be flexible with this type of mortgage.
Penalties
Before you decide on a mortgage, be sure to check out the Mortgage Redemption Penalties (see below link for explanation). These apply either when you repay your mortgage before the term ends, or you change lender within a specified time period.
Fiona Seymour-Jesse
SJ Copy
PS: Don’t forget to check out the links page!
Useful Links
Guides to Mortgages
http://www.bbc.co.uk/consumer/guides_to/mortgages_types.shtml
Wikpedia - definitions
http://en.wikipedia.org/wiki/Repayment_mortgage
Yahoo Finance
http://mortgages.charcolonline.co.uk/mortgages/calculator/calculatorhome.aspx?linkfrom=yahoo
Mortgage Penalties explained
http://www.moneynet.co.uk/mortgage-guide/mortgage-g04.shtml
The finance pages of Business in Berkshire are for general guidance only and advice should always be sought before acting on any of the suggestions made
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