Mortgage Types Guide
When you are researching for a mortgage, it's worth considering how you might want to repay your loan.
Over the term of your mortgage, you repay the amount you borrow (the capital) and the interest charged by the lender. A mortgage is secured against your home so if you don't keep up repayments on your mortgage, your home could be repossessed by the lender.
The payments you make every month repay a part of the amount you borrowed, plus that month’s interest. So by the end of the term, provided you have made all due payments on time, you’ve repaid the full amount.
- You have the reassurance of knowing you will have repaid your mortgage in full by the time it comes to an end
- Depending on the conditions of the mortgage product you choose, you can make overpayments and lump sum payments, which reduce your interest and capital payments
- In the early years, your payments will be mainly made up of interest, so if you want to repay the mortgage or move house in the early years, you’ll find that the amount you owe won’t have gone down by very much
The payments you make every month only cover the interest. So you pay less each month but at the end of the term you still owe the full amount you originally borrowed and that has to be paid back. This means you need to have some way of repaying the amount borrowed, like savings or an investment product.
- If the investment fund is greater than the amount needed to pay off the mortgage, you will have an additional cash lump sum
- Some plans are tax-efficient
- If the investment fund is less than the amount needed to pay off the mortgage, you will have a shortfall that you will have to make up
- Cashing in an investment plan early may result in financial penalties
- If you wait until the end of the term before paying back the loan, you’ll pay more interest than the interest charged on an equivalent repayment mortgage, because you pay interest on the whole amount over the whole term
The annual percentage rate (APR) is the best way of comparing mortgage rates. It is worked out in the same way for every mortgage and includes all charges so shows the true overall cost of your loan and a lower APR should mean a cheaper mortgage.
With a Fixed Rate mortgage, your payments stay the same for a fixed period of time - no matter what happens to interest rates and how high rates go.
Principality offer a competitive range of Fixed Rate mortgages for periods of 2 to 4 years.
Our Tracker mortgage rates move up and down in line with the Bank of England Bank Rate, for a set period. So, if the Bank Rate falls, so will your monthly payments, within 30 days of the change. Of course, if the Bank Rate goes up, your payments will too so you would have to make higher repayments in this case.
There may be a minimum interest rate on a Tracker mortgage which means if the Bank Rate falls below a certain level, your monthly payments will not reduce further.
These Variable Rate mortgages are discounted against our Standard Variable Rate for a set period. Discount mortgages can make your payments in the early years easier to manage and can free up money for you to spend on your home.
The discount is usually a stated percentage below our Standard Variable Rate, and it may reduce in steps as your mortgage term progresses, so that you gradually work your way back up to our Standard Variable Rate.
Our Fee Saver mortgages reduce the fees involved in mortgaging your home. This means there might be no product fee, no legal fees if you are remortgaging from another lender and you use our appointed solicitors, and no valuation fee.
Fee Saver mortgages can free up money to spend on your home, often when you need it most.
- Use our mortgage calculator to work out how much you can borrow and what your monthly repayments would be
- Take a look at our mortgage offers
- Talk to one of our mortgage advisers who will be able to help you with next steps by visiting your local branch, or by calling us on 0330 333 4000 (between 8am and 8pm weekdays and 9am to 1pm on Saturdays)
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