FBS Mortgages Ltd is authorised and regulated by the Financial Services Authority.
Types of Mortgages
Obviously we discuss mortgage requirements with you on an individual basis – but to give you an idea of the different mortgages available, we have listed below the main types, with a brief description:
• Standard Variable Mortgage – The Bank of England sets a base rate - your mortgage lender’s basic rate will usually be 1% or 2% higher. If the Bank of England changes the base rate, your lenders rate may also change. The mortgage is variable because your monthly payments vary in line with any interest rate changes.
• Fixed Rate Mortgage – The interest rate is fixed for a period of time, usually between one and five years, which means your monthly payments, will always remain the same. After the agreed period, the Standard Variable rate will apply.
• Capped Rate Mortgage – This will enable your monthly payments to go up or down if the interest rate changes, but will stop any steep rises by putting a limit or cap on the interest rate you pay. The capped rate usually applies for a period of one to five years, after this period, the Standard Variable rate will apply.
• Discount Rate Mortgage – The lender will provide a discount on their Standard Variable Rate for a fixed period. Your monthly payments can still go up and down if the interest rate changes, but you will be paying less than the standard rate. After the agreed period, the mortgage lender’s Standard Variable Rate will apply.
• Tracker Mortgage – The mortgage interest rate that you pay follows the movements of the base interest rate set by the Bank of England. The rate you pay will be set and fixed for an agreed period of time.
• Cash-Back Mortgage – In addition to the amount of mortgage you are borrowing, you will also receive a lump sum cash payment. Usually paid at the start of the mortgage, so it can be used to help with the cost of moving, or setting up your new home.
• Self-Certification Mortgages – The borrower confirms their level of income and ability to repay the loan, but without the need to supply evidence, such as payslips or bank statements. As a result these loans are often provided at higher rates than standard full status mortgages and will only allow you to borrow up to 75% or a maximum 85% of the property value.
• Repayment Mortgage – The most traditional form of mortgage, which if you keep making your monthly payments, will guarantee your property, is paid for in full, by the end of the loan term. This is because each month you pay off part of the interest and part of the capital amount you have borrowed.
• Interest Only Mortgages – During the term of the mortgage, your monthly payments only cover the interest on the capital sum borrowed. You will still need to repay the full loan amount at the end of the mortgage term. Mortgage lenders often require you to have an investment fund set-up along side this type of mortgage, which will increase enough during the term of the mortgage to pay off the capital sum you have borrowed.
• Combined Mortgages – A combined mortgage means that part of the loan is treated as an interest only mortgage and part as repayment. This is particularly useful for clients who already have an investment policy in place, perhaps in the form of an endowment, pension plan or ISA.
Your home may be repossessed if you do not keep up repayments on your mortgage.
