Mortgage Types

Repayment Methods

Interest Only 

You pay only the interest to the lender on a monthly basis.
Some lenders expect you to run a suitable investment vehicle alongside the mortgage which should generate sufficient sums to repay the initial capital borrowed by the end of the mortgage term. However the majority of buy to let lenders will happily accept pure interest only loans, with the property itself seen as the investment vehicle which could repay the initial capital borrowed if the loan were to run for the full term.

Repayment Mortgage 

With each monthly payment you pay both the interest and a small part of the outstanding capital. You will repay the full capital balance by the end of the mortgage term.

Interest Rate Options 

Standard Variable Rate (SVR) 

This is the everyday rate a lender would charge, usually once an initial 'special offer' has ended.

Base Rate Tracker 

Now often used instead of the SVR this rate will directly track the Bank of England Base Rate.

Fixed Rate 

For budgetary certainty you can fix your payments for a set period of time, usually 2 – 5 years. You will usually pay a higher rate for this privilege however.

Capped Rate 

Puts an upper ceiling on the rate you will pay, however allows you to benefit from any fall in rates. Not common as a buy to let product.

Discounted Rate 

You will receive a discount for a set period from either the SVR or Tracker rate.

Flexible Mortgages 

Enable the customer to have complete control in the management of their mortgage in that they vary their monthly payments &/or have a credit facility agreed to draw against, for any purpose, as and when required.

Redemption Penalties 

These usually apply where a lender has offered an initial incentive to attract a customers business. The lender will penalise you should you leave them within a pre-determined period. These could apply on any of the above Interest rate options.