Looking for mortgages can be a minefield. With so much competition in the field, banks and other lenders are continually devising new strategies to obtain your business. For first time buyers especially, the result is confusion and fear of the unknown.
To help you choose which path to take, here is a basic guide to the main types of mortgage. So if you’re feeling bamboozled by all the offers out there, at least you’ll know what it is you’re comparing.
Repayment Mortgages
The most common and generally least risky type of mortgage. Each monthly payment pays off a little of the loan, as well as the interest. Once the term is over, the debt is cleared. If you do not keep up repayments the lender can repossess the property.
Interest Only Mortgages
An interest only mortgage means you only pay back the interest on the loan over a fixed term. Once the term is over, you must repay the capital. This kind of mortgage has grown in popularity over recent years, especially amongst first-time buyers. They are cheaper, and you can earn your own interest on the money that you save to pay off the mortgage.
Buy To Let Mortgages
Buy to let mortgages are designed for those looking to purchase a house for the purpose of letting it out. These are often interest-only as it enables property prospectors to purchase more houses at once. However, concern has grown that many people are taking out interest-only mortgages without any thought as to how they will pay them back.
Endowment Mortgages
So-called because the consumer uses an endowment policy to provide life insurance. These were hugely popular in the 80’s, and heavily pushed on borrowers. The attached risk is greater than with other mortgages, as they work by saving money over the term, and paying the whole amount off at the end. This risk was not advertised well enough at the height of their popularity, and many lenders faced paying compensation for mis-selling. As a result, the popularity of endowment mortgages has sharply declined in recent times, although millions of policies are yet to mature.
Alliance and Leicester offer advice and information on all these mortgages and more, and for further help on a variety of financial know-how you could try the Beat that Quote website for a comparative look at loans and credit cards.
Whichever type of policy you choose, it is wise to research it thoroughly. Meeting with the bank armed with all the knowledge you need is the only way to be sure you are getting the best deal. Make sure you understand the terms of your policy – after all, your home is at stake.
