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There are two types of mortgages - fixed rate and variable rate mortgages.
A fixed rate mortgage is where the interest rate is fixed for a set period of time. This mean that your monthly payments remain the same each month during that set time. When the fixed term expires your mortgage will automatically switch to a variable rate.

A variable rate mortgage is where the interest rates can change throughout your mortgage term which also means that your monthly payment can also change. The lender will set a standard variable rate and the changes will normally be in line with the Bank of England’s base rate. Although, it is not uncommon for lenders to change the rate even though the Bank of England’s remains the same.

An interest only repayment option is when you will pay only the interest of the mortgage back. The benefits of an interest only mortgage is the monthly repayments will be lower, however you will still owe the same amount at the end of the term and the capital of the mortgage will not be paid. To own the property fully you will need to make other arrangements such as a savings plan or pension withdrawal.

A capital repayment option is when the monthly payments reduce the capital you borrow from lender as well as the interest. This will mean that your outstanding mortgage balance will get smaller every month and your mortgage will be repaid at the end of the term.

A mortgage in principle, also known as a decision in principle, is a statement from your chosen lender to confirm that you can borrow a certain amount before you have chosen and finalised the property you wish to purchase. A lender will need some basic information and will also perform a credit search before they can offer you a figure that they are willing to lend.

A mortgage advisor will look for the best mortgage and offer you invaluable advice and service. They have the qualifications and expertise of the products and lenders available for your situation. Using a mortgage advisor will also mean that you are protected as they have a duty of care to offer you the best advice. if the advice you have received is not best suited for your needs you have the right to complain and be compensated. They also have access to broker-only deals, where lenders will give them preferential rates that you will not be able to access without a broker. Best of all, they will take care of the application process on your behalf, meaning that you won’t get caught up with the paperwork and the jargon.

When your fixed mortgage period comes to an end, the interest rate will revert to the lender’s Standard Variable Rate, which will typically be more expensive than your initial rate. This means your monthly mortgage payment will also increase and that is why you should remortgage to lower your monthly payments for another fixed term. If your current deal is on a capital repayment option, your loan-to-value (LTV) would have also decreased during your fixed term which means that you would be offered competitive rates either with your current lender or another lender.

Loan-to -value (LTV) is represented as a percentage that is worked out by how much you are borrowing in relation to how much your property is worth. The percentage represents how much of the property is mortgaged and how much you own – your equity. For example, if your house is worth £200,000 and you have a mortgage of £100,000 then the loan-to-value would be 50%. The LTV percentage is important when looking for a mortgage as it impacts the interest rate that is offered by lenders. The lower the LTV percentage, the lower the interest rate offered.