Finance

A Complete Guide on Mortgage Types and Forms: Which is the best Mortgage for You?

As a first-timer, things can be overwhelming when you start discussing mortgages with them. You must study the types and forms of mortgages and their types. You must know some of the important types and forms of mortgages. This will help you understand which mortgage would suit your current condition.

With this article, we want to help you understand the different types and forms of home mortgages. That way, you won’t have a problem in comprehending the mortgages and their types and form.  Apart from that, this guide will help you aim to help you make the right decision of getting a mortgage that will fit your situation.

Mortgage101: It has Two Types

The VRM

VRM stands for a variable rate mortgage. This mortgage is known for its fluctuation in mortgage interest. Unlike the Fixed-rate mortgage, your payments often vary because there will be times your interest is lower or higher than normal.


What are the Advantages?

Overpayment is allowed. It shortens the term of your mortgage. Lower interest rates, lower fees on your end.

What are the Disadvantages?

  • Due to the unpredictable interest fluctuation, it’s harder to set aside for your repayment for your mortgage. You might have to cut some of your expenses as well just so you can meet the ends of your mortgage.

The Fixed-Rate Mortgages

Aside from VRM, we also have a Fixed-rate mortgage.  This type is known to be one of the popular and common mortgage loans in the world. A lot of people often prefer this because of its fixed and set system. When you say “fixed and set”, it means that the monthly interest and mortgage are already set and constant. Unlike the VRM, a Fixed-rate mortgage doesn’t change even when the interest is fluctuating up and down.  It also has the longest mortgage. It can take you up to 30 years to complete the repayment period.

What are the Advantages?

  • It is very budget-friendly. You don’t have to worry about changes in the amount.

What are the Disadvantages?

Fixed-rate mortgages don’t have discounted interest, even when the interest rates go down.

Variable-Rate Mortgages; The Six Forms of VRM

Unlike the fixed-rate mortgage, VRM has different kinds of forms of mortgage. In case you want to pursue VRM, make sure that you ask your mortgage advisor about these forms. These forms vary like interest. You must have an idea of how the VRM forms, how it works, and how your repayment process will go.

Tracker Mortgages

Usually, the interest rate of the mortgage is often based on the local market of real estate. However, for this specific mortgage, it will be based on the base rates from the Bank of England. Any fluctuation in their interest will also affect the interest rate of the mortgage.  To prevent financial issues with this form of VRM, you can opt to pay an early repayment charge

Discount Mortgages

Given its name,  your bank assigned to your mortgage will give you a discount on your interest for a specific number of years. Some lenders do offer discounted rates for the first 2 to 3 years of your loan term. However, once the discounted period ends, you will now start paying the normal interest. If you want to avail of this type of mortgage, do your research on the lender’s SRV. Lender’s SRV often vary, does the difference of the discounts on discounted mortgages

Offset Mortgages

The offset mortgages are a unique form of VRM.  This form is synced with your bank accounts (your savings and current account). It lessens the burden of the repayment. This is because your interest rates are immediately charged to bank accounts as an overpayment. This way, you don’t have to worry about interest rates in this case. All you have to worry about is the monthly repayment fee of your mortgage

The SVR Mortgage

The Standard Variable-rate mortgages or also known as SRV are another popular mortgage many people do get and prefer. With this, your bank will set the normal interest rate. This rate will not fluctuate. However, you can pay in advance. This way, you will be able to finish the mortgage term for your loan faster than you imagine it.

The Capped Rate Mortgages

The advantage of this mortgage is that it has a set capped. This cap is intended to ensure that whenever the interest rates will hit the ceiling, you will not be paying the ceiling rate. But rather, you will be paying the cap rate instead. This way, you will be able to meet the ends for the mortgage because you can just base it on the capped rate.

Mortgages can be really complicated. However, with this short article, it might be a lot to take in. you must do your research on mortgages, That way, it will be easier for you to make a decision on which mortgage type and form works best for your needs.