Choosing a mortgage is a huge commitment. It’s a decision that shouldn’t be taken lightly and you’ll want to make sure you end up with a mortgage that matches your unique circumstances.
Professional advice is essential. You can speak to a mortgage adviser or broker, an independent financial adviser or a firm who will take the time to get to know you and your circumstances and recommend the best mortgages available based on this.
Here at Hodge, we’ve put together a guide telling you about many of the different types of mortgages currently on the market. Remember, getting independent financial advice is key to making your choice – and you can only take out one of our mortgages through one of the channels above.
Fixed rate mortgages
A fixed rate mortgage is one of the most popular types. A key benefit with this type of mortgage is that your monthly mortgage payments will always be the same, which allows you to accurately budget for everyday life. You’ll also be able to switch to a new fixed rate mortgage at the end of the term, meaning you might be able to take advantage of cheaper rates.
However, something to be aware of is that if interest rates fall, you’ll be stuck with your fixed rate until the fixed rate period ends. When it does, you can choose to re-fix onto a new rate, or automatically move onto your lender’s standard variable rate (SVR).
Variable mortgages
As the name suggests, with a variable rate mortgage the rate goes up and down over time, which could see you paying less or more, depending on the interest rate (which differs between lenders). There are three main different types of mortgages which are variable: tracker, discounted and capped.
Tracker Mortgages
You have to pay a nominated interest rate – usually The Bank of England’s base rate – and a set percentage over a fixed amount of time. However, the base rate can fluctuate, so if this goes up or down, so do your monthly repayments.
Discounted rate mortgages
This is where the lender’s standard variable rate is reduced for a set period – usually around 2 – 5 years.
Capped rate mortgages
if you’re looking for a variable mortgage without too much risk, a capped rate mortgage could be a good option. The mortgage rate can go up or down, but there’s an upper limit, so your payments will never rise above a certain point.
Equity Release mortgages
This option, usually for borrowers in or approaching retirement, allows you to release a percentage of equity from your property, based on your age and property value. There are usually no repayments to make, as the loan will be repaid when your home is sold (usually when you move into long term care or pass away).
The interest on this type of mortgage rolls up, which means that the interest you’ve accrued when the mortgage ends can be quite substantial. That being said, some lenders let you make repayments on the interest throughout the mortgage, if you’d like to.
With an equity release mortgage, you continue to own your property, and there are lots of different options around things like early repayment charges and whether you take a lump sum or choose to drawdown regular amounts. You can also use this type of mortgage for a house purchase.
Interest only VS. capital repayment mortgages
Interest only and capital repayment are the different ways you can pay your mortgage back. A capital repayment mortgage is where you’ll pay back the interest and some of the loan each month, so at the end of the term you’ll have paid in full. On the other hand, an interest only option means you’re only paying the interest, and at the end you’ll have to pay the full loan back.
Interest only
- Lower monthly payments as you’re only paying the interest
- More expensive in the long run as the capital doesn’t shrink, so interest remains high
- At the end of the mortgage term you’ll need to repay in full or risk losing your home
Capital repayment
- Higher monthly payments as you’ll be paying off interest and capital
- You’ll pay back less overall as the more you pay off, the better interest rates you may have access to due to building up more equity
- It’s generally a safer option as if you keep up with repayments, you’ll be guaranteed to own your home at the end of the term
Mortgage durations
Another thing you’ll need to factor in to your mortgage considerations is how long you want your mortgage duration to last. On average, the period for repayment mortgages is 25 years, however you may be able to take out a mortgage for as long as 35 years. One of the biggest benefits with a longer period is that your monthly repayments are generally lower, but you’ll pay a fair bit more in interest.
A huge thing you’ll need to think about when it comes to durations is how old you’ll be when the mortgage is finished. Factor in your retirement plans here as, when you’re no longer working, you’ll usually be bringing in less money per month – which may make longer term loans trickier to pay back.
There are a number of lenders, Hodge included, who will take into consideration both pre and post retirement income and lend based on this. There are also options like Equity Release, where in, most cases, your income won’t matter as there are no repayments required.
Your financial adviser will be able to talk you through what’s available and what might best suit your wants and needs.
What mortgage types do Hodge offer?
At Hodge, we’re pleased to offer a range of mortgages with a special focus on those over 50, although our Holiday Let Mortgage is suitable from a younger age. Check out the different types of mortgages you can benefit from with us, below:
50+ Residential Mortgage
If you’re over 50 and are looking to take out a mortgage to buy a new home, a second property or are just thinking about re-mortgaging, we can help. Our 50+ mortgage is open to those up to the age of 88 and will enable you to maintain a mortgage until you’re 95. A key benefit to this type of mortgage is that it’s interest-only, so your monthly payments will be kept low, enabling you to make the most of your retirement funds.
Find out more about our 50+ residential mortgage.
RIO Mortgage
Another great option if you’re 50+ and after a residential mortgage for a new home or are re-mortgaging your current one is our RIO mortgage. Developed with retirement in mind, this mortgage type means that you’ll only need to pay the interest each month and the rest of the value is settled when the house is sold, either upon death or entering long-term care. Similarly to our 50+ mortgage, you’ll need to be between 50 – 88 to apply.
Find out more about our RIO mortgages.
Equity Release Mortgage
If you need to release a tax-free sum of money from the value of your home, our equity release mortgage is an excellent choice. You can choose to either receive a lump sum or multiple payments and it can be a good way to either fund your retirement lifestyle or provide a financial gift to a family member. You won’t need to pay back the amount you release either, it just gets deducted from the sale of your home either upon death or entering into long-term care.
Find out more about our equity release mortgages.
Holiday Let Mortgage
A holiday let can be a great way to supplement your income and offer a solid return on property investment. We’ll lend on up to 3 holiday-lets and, for added convenience, Airbnb properties are welcome too. What’s more, lending is available for those aged between 21 – 95 and there’s no personal income requirement, you’ll just need to show that the property can yield a minimum rental income of 145% of interest payments at 5.5%.
Find out more about our holiday let mortgages.
That’s our guide to some of the different mortgage types available and the products we offer. As it’s such an important decision, you’ll need to seek the help of a financial or mortgage advisor who’ll take into account your personal situation and make an informed recommendation, offering you options which suit you perfectly.