Main types of Mortgages

There are several types of mortgages available to house buyers in the UK and knowing which one best suits your needs is essential before you submit a request. Due to the number of different mortgages, we are going to focus on the main types for a typical house buyer.

The two main types of mortgages available are repayment mortgages and interest only. A repayment mortgage is where you repay some of the money you borrowed as well as some interest. For example, if you borrowed £50,000 with a repayment mortgage, each month you will pay off some of the £50,000 and some interest which goes to the mortgage provider. By the end of the term you will have paid for the house. This type of mortgage is the most common for first time buyers and homeowners.

Who is a repayment loan best suited for? A homeowner who wants to own their property at the end of the mortgage period.

An interest only mortgage is where you repay the interest on the mortgage only. For example, if you borrow £50,000 with an interest only mortgage, each month you will pay off the interest only. The benefit of this mortgage is it should result in a lower monthly cost, however, you will not be paying back the original loan. This means you will not own the property outright, as you will never pay off the original loan (you can pay off the loan from savings, or other means, if available). You will also likely require a larger deposit.

Who is an interest-only loan best suited for? Investors who want to capitalise on lower monthly repayments. This type of mortgage is typically not available to first-time buyers.