Your mortgage can be between 5 and 40 years (most go up to 35). The number of years you take to pay back your loan is called your mortgage term.
It’s usually best to take the shortest term you can afford. The shorter the term, the more you pay off each year and the sooner you become mortgage-free.
A shorter term usually means bigger monthly payments, as you have to pay off more of the loan each month.
But it might mean a lower total cost over the life of your loan – for example the total you’ll have paid at the end of your term, as you’ll probably have paid less in interest. A mortgage broker will be able to help you work out the best term for you.
Variable rate: Your monthly payment fluctuates in line with a Standard Variable Rate (SVR) of interest, set by the lender.
You probably won’t get penalised if you decide to change lenders and you may be able to repay additional amounts without penalty too. Many lenders won’t offer their standard variable rate to new borrowers.
Discounted rate: Like a variable rate mortgage, your monthly payments can go up or down. However, you’ll get a discount on the lender’s SVR for a set period of time, after which you’ll usually switch to the full SVR.
You may have to pay a penalty for overpayments and early repayment, and the lender may choose not to reduce (or delay reducing) its variable rate – even if the Base Rate goes down.
Discounted rate mortgages can give you a gentler start to your mortgage, at a time when money may be tight.
However, you must be confident you can afford the payments when the discount ends and the rate increases.
Tracker rate: Your monthly payment fluctuates in line with a rate that’s lower, or more likely higher than a chosen Base Rate (usually the Bank of England Base Rate).
The rate charged on the mortgage ‘tracks’ that rate, usually for a set period of two to three years. You may have to pay a penalty to leave your lender, especially during the tracker period.
You may also have to pay an early repayment charge if you over pay extra amounts during the tracker period.
A tracker may suit you if you can afford to pay more when interest rates go up and you’ll benefit when they go down. It’s not a good choice if your budget won’t stretch to higher monthly payments.
Fixed rate: With a fixed rate mortgage the rate stays the same, so your payments are set at a certain level for an agreed period. At the end of that period, the lender will usually switch you onto its SVR (see ‘Variable rate’).
You may have to pay a penalty to leave your lender, especially during the fixed rate period.
You may also have to pay an early repayment charge if you pay back extra amounts during the fixed rate period.
A fixed rate mortgage makes budgeting much easier because your payments will stay the same – even if interest rates go up. However, it also means you won’t benefit if rates go down.
Offset mortgages: Taking out an offset mortgage enables you to use your savings to reduce your mortgage balance and the interest you pay on it. For example, if you borrowed £200,000, but had £50,000 in savings, you would only be paying interest on £150,000.
Offset mortgages are generally more expensive than standard deals, but can reduce your monthly payments, whilst still giving you access to your savings.
Government-backed schemes: Over recent years the government has backed a number of schemes – such as Help to Buy – to support home-buyers.
We can explain the details of these schemes and whether you can benefit from them.
To get a mortgage, you’ll need a big upfront payment, called a deposit, which is usually a minimum of 5% of the total price of the property you want to buy.
The bigger the percentage you come up with upfront, the less of the loan you have to pay off over the mortgage term. Plus, many mortgage rates reduce for every 5% you can put down in your deposit.
The two most common ways of repaying your mortgage are capital repayment and interest only:
Capital repayment: On a repayment mortgage your monthly payments will comprise a portion to pay the interest on the money you’ve borrowed, as well as a portion to repay the capital sum (the amount you borrowed).
The benefit of capital repayment is that you can see the mortgage reducing each year (albeit very slowly in the early years) and you are guaranteed to repay the debt at the end of the mortgage term, as long as payments are maintained.
On a capital repayment mortgage the shorter the term you pay your mortgage over the bigger the monthly payment will be. By having a longer term you may benefit from a lower monthly payment but you will pay more interest to the lender over the term.
You will need to think about how soon you want to be ‘mortgage free’ and balance this up with the mortgage term that makes the monthly payments affordable.
Interest only: If you opt for an interest only loan, your monthly payments will only cover the interest on the mortgage balance. The capital (the amount you borrowed) will remain the same and will need to be repaid at the end of your mortgage term.
This means you will need a separate investment or combination of investments to generate the capital required, and you will need to prove that you can afford to do this. The value of investments can go down as well as up and you may not get back the original amount invested.
For an interest only mortgage, the lender will need to see your plan for repaying the loan when the interest only period ends. If you fail to generate enough to repay your mortgage by the end of the mortgage term, you may be forced to sell your property.
Edge Mortgages Ltd T/A Edge Mortgages (FCA No 988131) is an Appointed Representative of Connect IFA Ltd (FCA No. 441505) which is Authorised and Regulated by the Financial Conduct Authority and is entered on the financial services register (https://register.fca.org.uk/) under reference 922009. The FCA does not regulate some forms of Business Buy to Let Mortgages and Commercial Mortgages to Limited Companies. The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
Edge Mortgages Ltd Registered Address is Office 1494, 58 Peregrine Road. Hainault. Ilford. IG6 3SZ. Company is Registered in England and Wales Reg. 14469065. Edge Mortgages Ltd is registered with the Information Commissioner’s Office under registration reference: ZB443111. Copyright © 2021 All Rights Reserved.
A fee will be payable for arranging your mortgage with Edge Mortgages Ltd. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity, but this is typically £500 for our services. Initial consultation is always free.
A fee of (£0 – £199) may be payable at the outset when you apply for the mortgage which will be discussed and agreed with you at the earliest opportunity.
We don’t charge any fee for insurance services.
Commission disclosure: We are a credit broker and not a lender. We have access to an extensive range of lenders. Once we have assessed your needs, we will recommend a lender(s) that provides suitable products to meet your personal circumstances and requirements, though you are not obliged to take our advice or recommendation. Whichever lender we introduce you to, we will typically receive commission from them after completion of the transaction. The amount of commission we receive will normally be a fixed percentage of the amount you borrow from the lender. Commission paid to us may vary in amount depending on the lender and product. The lenders we work with pay commission at different rates. However, the amount of commission that we receive from a lender does not have an effect on the amount that you pay to that lender under your credit agreement.
Making a Complaint: It is our intention to provide you with a high level of customer service at all times. If there is an occasion when we do not meet these standards and you wish to register a complaint, please write to: Compliance Department; Connect IFA Ltd, 39 Station Lane, Hornchurch, RM12 6JL or call: 01708 676110. If you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service www.financial-ombudsman.org.uk
Please check our Privacy Policy for more details.
Your home may be repossessed if you do not keep up repayments on your mortgage or loans secured on it.
Edge Mortgages Ltd T/A Edge Mortgages(FCA No 988131) is an Appointed Representative of Connect IFA Ltd (FCA No. 441505) which is Authorised and Regulated by the Financial Conduct Authority and is entered on the financial services register(register.fca.org.uk) under reference 922009.
