A lifetime mortgage

 is a long-term product that enables borrowers to release equity from their home while still retaining ownership.

While the amount you can borrow with a lifetime mortgage varies based on your age and the value of your property, with all these types of loans, you won’t have to make any repayments until you die, go into long-term care or sell your property.

Interest is charged on what you borrow, and can either be repaid or added to the total loan amount. Once you die or move into permanent care, the money from the sale of the property is used to pay off the loan, with any money left over passing on to your heirs.

When taking out this type of loan, you can choose to either borrow a lump sum, or instead opt for a lower amount with the option of a drawdown facility. The drawdown facility suits those who might want to take out regular or ad-hoc small amounts rather than one larger loan, as it means borrowers will only need to pay interest on the money they need.

If you are worried about the inheritance for your family, you can choose to protect some of the value of your property when opting for a lifetime mortgage.

Essentially, a lifetime mortgage is a type of equity release stream that can provide an income and free up some of the wealth tied up in your home while you continue to live there.

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What are the different types of lifetime mortgages?

There are two different types of lifetime mortgages, each with different costs.

Interest roll-up mortgage

With an interest roll-up mortgage, you either get a lump sum or are paid a regular amount. On this, you are charged interest which is added to the loan.

With this type of mortgage, you don’t need to make any regular payments. Instead, the amount you borrow, including the rolled-up interest, is paid once your home is sold, at the end of the mortgage term.

Things to look out for:

Andrew Johnson, money expert at the Money Advice Service, says: 'The amount you owe can grow very quickly so choose a scheme with no-negative-equity-guarantees, so what you owe will never exceed the value of your property.'

Interest-paying mortgage

With an interest-paying mortgage, you are paid a lump sum, and can make either monthly or ad-hoc payments, which reduces or stops the impact of the interest building up.

You can also pay off the capital of your home with some mortgage schemes. The amount you borrow is paid once your home is sold, at the end of the mortgage term.

Things to look out for:

'A rise in interest rates could significantly impact your repayments so consider a fixed rate scheme or one with an ‘interest rate cap’,' says Johnson.

'Missing monthly payments could mean that the mortgage is automatically switched to a roll-up mortgage or repossession. An independent financial adviser will help explain your options.'

Are there any potential negative sides to a lifetime mortgage?

According to Johnson, there are a number of risks to consider when thinking about whether a lifetime mortgage is suitable for you.

'With an interest roll-up mortgage, the total amount you owe can grow quickly,' he says. 'Eventually this might mean that you owe more than the value of your home, unless your mortgage has a no-negative-equity-guarantee. Make sure your mortgage includes this guarantee.

'It is also worth thinking about whether a mortgage with a variable interest rate suits you as the interest rate could rise significantly.'

Johnson warns that it’s also important to consider the impact on your inheritance when considering a lifetime mortgage. 'You should also think about what you whether you want to leave your house to your children as an inheritance as well as your tax position and entitlement to means-tested benefits,' he says.

It’s also worth considering all the options before taking out a lifetime mortgage. As this type of product is a long-term commitment, deciding to repay the loan early could incur heavy early repayment charges.

It may be worth talking to a mortgage broker so they can source the best mortgage for you, and explain the small print before you decide to go ahead. Although they can be costly initially, having an adviser on hand could help you save time and money in the long term. They may suggest products you haven’t considered previously that might be better suited to your particular circumstances.

Lastly, as you still own your home, lenders will also expect you to keep your home in good condition within the framework of reasonable maintenance. You may need to put some money aside to keep you home in good condition. If this could be problematic, a lifetime mortgage may not be for you.

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Are there any hidden costs?

As with all mortgage products, before going ahead, it’s important to consider the extra costs that you may be charged.

These could include an arrangement fee to the lender, a broker’s fee, legal fees, valuation fees, an adviser’s costs, buildings insurance or a completion fee.

Make sure you’ve factored in all these extras before choosing your lifetime mortgage product to avoid any surprises down the line.

Saving for a mortgage

 deposit can be the most daunting element of buying a house, but remember that there’s no set amount you’ll need to put down.

With the wide variety of products offered by banks, and the array of schemes offered by the government nowadays, you can buy a property with just a 5% deposit, or even 0% in some cases.

The larger your deposit, the smaller your loan and the less you’ll have to repay each month. If you can manage to save up a large deposit, you’ll be able to find better and cheaper deals.

However, of course, waiting to save up as big a deposit as possible will mean waiting longer to put your foot on the property ladder and potentially having to pay more for your property if in a period of rising prices.

It’s also crucial to remember that the amount you can borrow is also dependent on how much you earn, as well as other factors.

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How much can I borrow for a mortgage?

The main factor for how much you can borrow comes down to what you earn and spend. The amount you will be able to borrow depends on the quality and sustainability of your income, as well as your monthly outgoings.

These are the crucial parts of lenders’ “affordability criteria” - essentially working out how much you can afford to borrow. Different lenders have different methods, so remember that some lenders will be able to lend you more than others and compare what you can get accordingly. You can calculate how much you are likely to be lent with a variety of online calculators.

The other main driver is loan to value: in the current market, you would usually need a deposit of at least 5% of a property’s value to successfully get a mortgage, with the bank lending you the remaining 95% of the property’s value.

To get the cheapest and most competitive mortgage offers on the market, you’d typically need to have a deposit of 40% or more, although this is unrealistic for most first-time buyers.

The more you put down on your deposit, the better and lower the mortgage rate tends to be.

What if I only have a small deposit?

There are a number of government-backed initiatives to help more people get on the property ladder and own their own homes, such as the Help to Buy scheme.

For example, with the Help to Buy: Equity Loan scheme, you only need a 5% deposit to own a newly-built home worth up to £600,000. You can borrow up to 20% (up to 40% in London) of the purchase price from the government, with a 75% mortgage (55% in London) to make up the rest.

If you are set on getting together a big deposit, there are ways to increase your own savings. You could buy with a friend or consider shared ownership and shared equity schemes.

For example, with the government’s Help to Buy: Shared Ownership scheme, you can buy a share of your home and pay rent on the rest. When you are able to afford to, the government will sell you a bigger share in your home.

Many young people also rely on the ‘bank of Mum and Dad’, with family contributions helping them get a foot on the property ladder.

Why is it better to have a bigger deposit?

Apart from the fact that your monthly repayments will be cheaper, with a bigger deposit you are more likely to successfully get a mortgage - and a better mortgage - as lenders will be more likely to believe you can afford your mortgage repayments each month. If you only put down a small deposit, you are more likely to fail affordability checks, as lenders will see that you’ll need to spend more on your mortgage repayments.

Secondly, it’s less risky to have a big deposit, as it makes it less likely that you will fall into negative equity. This is when a borrower owes more on their mortgage than their property is actually worth. It is wise to avoid this risk, as being in negative equity can make it impossible to move house or transfer to another mortgage. Worse, if you are in negative equity and you temporarily lose your source of income, you are at a high risk of repossession.

This is the biggest lump sum of money I’ll have to pay, right?

While the mortgage deposit is the biggest lump sum you’ll have to fork out when buying a house, don’t forget that there are several other costs associated with buying a house other than the deposit, including stamp duty, solicitors’ fees, mortgage fees, survey costs, land registry fees and removal fees.

You might also need to pay for renovations or buy new household appliances, so bear these additional costs in mind when trying to work out the size of your deposit.

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Can I buy a property without a deposit?

In some cases, depending on whether you meet the right criteria, some lenders will lend you 100% of the price of the property - known as a 100% LTV mortgage - but this will have very high costs associated with it.

Because the lender is taking on so much additional risk by providing you with a 100% mortgage, there will typically be a higher rate of interest to compensate.

Because these types of mortgages are more risky, they are often limited; often only to existing borrowers or to borrowers with financial help from their families. They are also sometimes available to borrowers with a guarantor, who would have to assume responsibility if the borrower failed to keep up their payments.

If you do have some money for a deposit, it’s better to put this down initially rather than trying to apply for a 100% mortgage, as it will help you get a cheaper mortgage overall.

This week, the government announced that the Help To Buy mortgage guarantee scheme would be ending at the end of 2016.

What was the Help to Buy scheme?

Originally designed to help first time buyers with small deposits to buy their own home, the scheme meant that buyers only needed to put down a deposit of 5% of the value of their home, with their mortgage covering the outstanding 95%.

The scheme has helped over 86,000 households to date.

Why is the Help to Buy ending?

In a departure from David Cameron and George Osborne’s government, the new Chancellor Philip Hammond has announced that the scheme, which was introduced in 2013, will not be renewed past December 2016 as its purpose has been “successfully achieved”: effectively, that there are now enough mortgages available to those buyers with a small deposit because of confidence in the market.

Announcing the news in a letter to Mark Carney, the Bank of England governor, Hammond wrote:

'The mortgage market has become less reliant on the scheme as confidence has returned.

'There are now 30 lenders offering 90-95% loans outside the scheme.

'This reflects the fact that the scheme was introduced with a specific purpose that has now been successfully achieved and, as such, I can confirm that it will close to new loans at the end of 2016 as planned.

'I will inform participating lenders.'

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What does the Help to Buy closure mean?

The end of the scheme has prompted concern from some experts, who are worried that the closure may make it even harder for first time house buyers to get onto the property ladder if they are only able to find a small deposit.

While Hammond was confident that many lenders were offering 90-95% loans outside the scheme, there are worries that the number of mortgage deals available with a small deposit could fall dramatically after the end of the scheme.

However, other experts welcomed the ending of the scheme, saying that it only pushed up housing prices and made the demand for homes outweigh the supply.

Hammond himself was keen to dismiss concerns that buying a home might now be harder, saying: 'It is important to note that the end of this particular scheme does not diminish in any way the government’s commitment to supporting those looking to get on the housing ladder.'

What are the Help to Buy alternatives for those who may have wanted to use the scheme?

The ending of this particular Help to Buy scheme doesn’t mean it’s the end of the road for first-time buyers with a small deposit.

Nick Hill, money expert at the Money Advice Service, said there were several alternatives for first time buyers hoping to get on the property ladder.

'Even though the scheme is closing, there are a number of different schemes that you could use if you’re thinking about buying a home,' he said.

'For example, the Help to Buy ISA could be a helpful option. It lets you make a deposit of up to £1,200 and then put in £200 every month after that.

'For every £200 you put in, you’ll get £50 from the government. They’ll give you a maximum of up to £3,000 this way, so you’ll get the most benefit if you put in £12,000 altogether.

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'Depending on your situation, it might also be worth looking into one of the other Help to Buy schemes such as the equity loan, shared ownership or the London Help to Buy scheme.'

Although mortgages

 are long-term commitments, in most cases you don’t have to stick to the same product for its entire length.

Generally, your mortgage product, whether fixed or variable, will revert to the standard variable rate after a number of years - normally between two to five - and at this point it might be worth shopping around, looking for a new mortgage, and remortgaging.

Remortgaging is essentially switching what you owe on your current mortgage into a different mortgage product, either with the same bank or a different lender altogether.

Many homeowners decide to remortgage their homes for a variety of reasons: to reduce the cost of monthly repayments, to switch the type of mortgage they are on once their current deal comes to an end, or to release equity from their property if it has gone up in value, or if their income has gone up.

They could also be influenced by their view on future interest rates; if they believe interest rates will fall in the future, they may want to switch to a variable rate rather than a fixed rate, or if they believe they will rise, they may wish to do the reverse.

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How do I remortgage my home?

The way you remortgage your property is similar to how you got the mortgage for when you first bought your home.

You should start to think about remortgaging your property a few months before the end of your current product to make sure you’re well-informed ahead of time and are clued up on all the different options.

It’s advisable to speak to your current bank and see what deals they have available. As always, it’s also recommended that you shop around and see what else is on offer at the time to see if you are getting a good deal.

If you find a deal elsewhere that’s better than what your current lender is offering, it’s still worth giving them a call: they may be keen to match the terms in order to keep your business.

You can also speak to an independent financial advisor or a mortgage broker, who, as well as arranging your new mortgage, can work out whether remortgaging will save you money or whether you are better off sticking to your current product.

As you did when you first took out your mortgage, you’ll have to complete the necessary application forms and credit checks, and provide proof of earnings. You’ll likely need recent bank statements, pay slips, a P60 form, a proof of address and an ID document such as a passport.

You may also need a solicitor to handle the legal side of the deal. If you have an adviser or mortgage broker on hand, they usually help deal with the administrative side of the proceedings, and will be on hand to aid you with your application forms.

The lender may also wish to survey your home to establish its value.

What should I look out for when remortgaging my home?

As you did when you first took out your mortgage, bear in mind that what seems cheapest may not always be best.

Look to the future: if you’d struggle to keep up repayments in the event of rising interest rates, you should secure a fixed rate product, so you can be certain about your monthly repayments.

If you’d rather stick with a floating, or variable, product, do your research into what different lenders offer to make sure you’re getting a good deal not just for now, but for the duration of your mortgage product period.

Could remortgaging end up costing me money?

When remortgaging, make sure you do all your sums to make sure the benefits of switching are worth the costs.

Whether you research current products yourself using comparison websites or you speak to an adviser, make sure you read the small print to make sure there are no early redemption penalties if you remortgage before the expiry of your mortgage product.

These penalties tend to be associated with fixed rate mortgages and could be costly, therefore removing all the gain from remortgaging early.

You should also take other charges into account, such as arrangement fees, legal fees and valuation fees, when assessing how much money you will save by remortgaging.

It’s also worth assessing whether your personal circumstances have changed since you first took out your mortgage, such as whether you have recently changed jobs or decided to become self-employed.

Changes such as these may have an impact on your ability to get a new mortgage.

Assess the value of your house, too, as if your home has gone down in value, you may not be able to borrow as much as you were previously able to.

However, if your property has gone up in value, you may be able to get better and cheaper deals if you decide to remortgage.

It is important to keep these factors in mind to avoid any costly mistakes.

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What happens next?

As with your original mortgage offer, if your application is successful, you will once again be issued with a formal mortgage offer.

Don’t forget to read the small print thoroughly to make sure you fully understand the terms and conditions you are committing to.

What if I’m turned down for a remortgage?

If you’re turned down, don’t panic and send out more applications: too many applications can negatively affect your credit score.

It’s worth asking your lender why they turned you down so you can make any necessary changes before applying to a different lender again.

Buying your first home is an extremely exciting time, but it can also be complicated. How much money will you need? What sort of mortgage should you opt for? How will any changes to stamp duty affect you?

Here are the most important elements to consider before you buy your first home.

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How important is my location?

Are you set on a particular location - for example to be close to family or friends - or can you be flexible about the area you choose to live in?

Ask yourself what is more important to you, living space or location? Is having a garden more important to you than minimising time on the train getting to work? Would you rather only have one bedroom but be walking distance from your office?

Asking questions like “What is more important to me, space or commuting time?” can be useful, especially if you work in a busy urban area. It’s also important to compare how much you’ll have to spend on transport to work from different locations before making a firm decision.

There are also important non-financial considerations when choosing where to live: for example, what the local schools are like, how close you are to the shops, if you like the feeling of the neighbourhood, and how safe it is.

Finally, buying a property is the most expensive purchase most people ever make, so while you may have no plans to sell it in the immediate future, it’s worth speaking to an estate agent or property advisor you trust to understand whether the location is likely to prove a good investment.

Looking around at similar properties and assessing their worth will also help you decide whether you are getting good value for money. If you’re not, it might be best to look at other properties.

If you choose the right property in the right area, there’s a good chance that the value will grow over time: good news for you when you come to reselling, whether in five or 25 years.

What’s my budget like?

Are you buying by yourself or with a partner? Are you getting any contributions from family at all? At this stage, it’s really important to consider your total financial position.

Consider how much money you and your partner make together and individually, and whether you have savings to help towards the cost of a deposit on a home.

Then it’s important to be honest with yourselves about your spending habits. Ask yourselves how much you spend every month, what is not essential that could be reduced and if you have any big expenses coming up, such as a wedding or a holiday, that will take a large chunk out of your savings.

Unless you’ll be buying in cash, it’s also important to start doing research into which sort of mortgage will be right for you. Consider how much you can afford to borrow, how much money you will have to spend on a mortgage every month, what type will be right for you, and assess whether you can afford a mortgage broker or adviser to simplify the process.

You should also take into account mortgage fees when figuring out how much your mortgage will cost you.

How to check your credit report

It’s also worth checking your credit report before you apply for a mortgage, as lenders will take it into account when deciding on your application.

There are three main companies that compile credit reports: Experian, Equifax and Callcredit, and all three are obliged to provide you with a copy of yours for just £2. You can either access your credit report online or ask for a written copy. There are also free trials you can use to access your credit report without paying, though you’ll have to remember to cancel before the trial run is over.

You should also budget for other expenses that inevitably come with buying a home.

These include paying for a solicitor to help you carry out your transaction, allowing for stamp duty, budgeting for costs such as council tax and content and buildings insurance, hiring removal companies to carry out the move and hiring a surveyor to inspect the property before you agree to buy it to make sure everything is in order and there are no unexpected problems.

While a survey can be pricey - costing anywhere between £250 to £1000 - remember that if the surveyor uncovers any problems with the property that will cost you money once you move in, you can use this as a negotiating tool to try to get a reduction in price.

If you want to carry renovations out once you own the property, this should also be generously budgeted for, as building work can often end up costing more than originally planned for due to unforeseen issues. Don’t forget about paying for furnishings and appliances too.

If the renovations are so significant that you won’t be able to live in the property while it’s being refurbished, you should also consider your living costs: will you be able to afford paying a mortgage and rent simultaneously?

How could my budget change in the future?

It’s also vital to have a contingency plan for the eventuality in which your income and spending could potentially change, for example if you go on maternity leave, if your work circumstances change or if you fall ill.

While some circumstances may not seem likely, it’s better to be safe than sorry, and to make sure you have proper insurance - such as health insurance - to cover you in the eventuality that something could prevent you from paying your mortgage. It's good to have adequate health insurance if you can afford it to reduce the risk that health issues would interfere with your work. Some lenders also insist on life insurance so that if the borrower dies the policy will repay the loan.

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How can I get financial help with buying a property?

If you are buying a property with extra rooms, it might be worth considering renting one of them out. Look into local rental prices, consider how much your extra room may be worth, and work out the net income you could make after paying the necessary fees such as estate agent costs and taxes.

It’s worth looking into the government’s Rent a Room scheme, which allows you to earn up to £7,500 a year tax-free. However, there are advantages and disadvantages.

For example, while it’s advantageous that you can earn £7,500 a year tax-free, you can’t claim any expenses related to the letting. It’s worth assessing your personal financial situation to figure out whether the scheme would be beneficial for you and your home.

There are also a number of government schemes aimed to help homebuyers, such as the Help to Buy: Equity Loan scheme, which lets you borrow up to 20% (up to 40% in London) of the purchase price on a newly built home from the government, and the Help to Buy: Shared Ownership scheme, where, if you can’t afford to buy 100% of a home, you can buy a share of it and pay rent on the rest.

There are plenty of different schemes aimed at buyers with different backgrounds and financial situations, so it’s worth reading up on the variety of options to see which scheme matches your circumstances.

Taking out a mortgage is a huge financial commitment, so it’s important to find the best deal you can while also finding the right deal for you.

Here is a checklist of everything you should do to make sure your mortgage application gets accepted.

Work out a budget

Have a detailed look at your income and spending and ask yourself some honest questions. How much can you borrow to cover the cost of buying a property? Will you have enough spare to cover all the costs that come with it, such as stamp duty, lawyer’s fees and renovation costs? The amount you’ll pay for your monthly mortgage repayments will depend on how much you want to borrow and what type of mortgage you have, so make sure you’re clued up on how much you’ll be able to afford every month before you put in an application.

You should also calculate how much you can afford to put down for a deposit: the bigger the deposit, the bigger the choices of mortgages you can apply for. Plus, if you have a large deposit, you will also benefit from lower interest rates and, of course, lower monthly payments. If you are buying with a partner or friend who has money for a deposit and a great credit history, this can help you secure a good mortgage jointly, but make sure you discuss what would happen in the future if you decided to live apart.

When you're working out your budget, it's also important to think about the other fees and taxes involved in buying a property.

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Take a look at your credit score

Get a copy of your credit report, which will let you see what lenders have access to when they review your application. If it’s looking less than perfect, you can quickly make some adjustments which will help you boost your score, such as making sure you are on the electoral roll (so lenders can see you live where you say you do), making sure all the information about you is correct, and closing down unused accounts. You should also try to make sure you always make payments on time every month on your credit cards or other debts. Even if you only pay the minimum amount, regular, punctual payments will help to show lenders that you can effectively manage your credit arrangements.

Take your work situation into account

Lenders will want to see that you have some stability in your professional life, so if you’re thinking of switching jobs, now might not be the best time. Most lenders will want to see that you’ve been in the same job for at least a few months, so if you’re still within your period of probation, check that the lender you want will be happy to lend before it ends. If you are freelance or self-employed, make sure you have a detailed set of accounts to prove your income, and you might want to ask a regular client to provide you with a reference to show you have consistent work.

Prepare the necessary documents

Lenders will need to see proof of both your earnings and spending habits, so you will need to have a selection of recent pay slips and bank statements to show, as well as a P60 form from your employer to show a summary of your pay and how much tax has been deducted. As well as proof of income, you’ll need to provide a copy of your passport or driving license to prove your identity, as well as some recent utility bills. They will also ask to see the address of the property, as well as the details of the estate agent and your solicitor.

Lenders will want to find out as much as they can about your finances, and how you will be able to afford your mortgage, so they may ask you questions about your spending, or about future plans that could impact your ability to service your mortgage in the years to come. They will also assess how your repayments would be affected if interest rates were to rise in the future.

If you’re self-employed, getting a mortgage can be trickier, but it’s not impossible: some lenders will be happy with seeing two years of full accounts, while others will want further proof that you’ll be able to keep up with regular repayments. They might ask for an SA302 form for the last three years from HMRC, or to see accounts from the last three years.

Keep your applications consistent

Once you’ve begun applying for a mortgage, try not to change figures on your application, as this can hold things up and create delays. Make sure you are sure about everything before you start your application to help the process remain as smooth and trouble-free as possible. Telling the truth on each part of the application is crucial and should never be deviated from: for example, write your exact salary, not a rounded-up figure.

How do I find the right mortgage deal for me?

With so many options out there, it can be a confusing and overwhelming task to try and pick the right mortgage for you. There are tables of the top mortgage deals in the newspapers, as well as plenty of information and comparison websites online.

There is also the option to speak to professionals who can advise you, such as an independent financial adviser (IFA) or mortgage broker. If you are prepared to pay to take the stress out of the proceedings, or if you are busy at work and don't have time to find the best mortgage provider for you, a mortgage broker can be a good option. Although it adds to the cost of buying a house, a broker can help you with the process and help you find the best deal for you so that it may be cheaper in the end. They can look into your specific situation, research different options and help you with applying, with expert opinions on hand for any questions you might have.

Most importantly, no matter which route you go down, make sure you understand what you are committing to fully. If a deal sounds too good to be true, it probably is. Make sure you call your lender or an adviser to make sure you have understood each element of the mortgage you want to take on, both in the short and long term.

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How long will it take?

Depending on the lender and the type of mortgage you’re applying for, and as long as you’ve provided all the necessary information, you will normally get the mortgage offer within two to four weeks. Make sure you read all the documentation that comes with the offer, and that you pay attention to the small print, to make sure you have fully understood everything you are committing to.

When you borrow money for anything, you’ll have to pay it back with interest. Effectively, interest is the cost of borrowing, and it’s normally expressed as an annual percentage of the amount you’re borrowing. That percentage is the interest rate.

Interest rates are set by the lending bank, but influenced by market conditions such as the Bank of England’s base rate and by the yield on various government bonds. As of September 2016, interest rates are very low.

If the base rate or the yield on government bonds rises, lenders will charge more, because their cost of borrowing will increase.

Interest rates are inextricably linked to mortgages: it’s important to consider from the word go how a change in interest rates could affect your mortgage repayments and your ability to service your mortgage.

Apart from looking into how much you can afford to repay each month and what sort of deal you can get, you should also take into account your personal circumstances when choosing a mortgage.

For example, if your work is tied to the economy, then it might be more advisable to get a variable mortgage, as interest rates often fall when the economy is doing badly so you can benefit from a lower mortgage even if your pay is affected.

On the other hand, if you have a safe job with a largely fixed salary (rather than a lot of bonus and commission), a fixed rate would ensure you can properly budget for your repayments.

There are various tables showing selected mortgage deals on offer in the newspapers, which can help you get a feel for the options available to a borrower. Comparison websites are also useful.

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There are two main categories of mortgages when it comes to rates: fixed rate and variable rate.

See more details about mortgage types outside of interest rate

What are fixed rate mortgages?

With fixed rate mortgages, the interest you pay stays the same for a number of years, regardless of what happens to interest rates. This is normally for a period of between two to five years, though it could be up to 10 years.

Fixed rate mortgages pros

You can rest assured that your monthly payments will stay the same, no matter what happens to interest rates, helping you to plan your spending better.

If interest rates go up, you will avoid paying higher charges.

Fixed rate mortgages cons

If interest rates fall or stay stagnant, you are worse off, as fixed rate deals are normally higher than variable rate mortgages.

Things to look out for with fixed rate mortgages

Consider exit penalties if you want to leave the deal early, because once you agree to a fixed rate mortgage, you are tied in for the period during which the rate is fixed - unless you pay the penalty.

You should also make sure you shop around for a new mortgage deal a few months before the fixed period ends, or you will be automatically transferred to your lender’s standard variable rate, which could end up being more expensive.

If you’ve chosen a cheap deal with a seven or 10 year fix, make sure the mortgage can be transferrable if you want to move. If you haven’t checked this and you decide to move house in two or three years, there could be a big charge for repaying your mortgage early. Make sure you read the small print and consider your future plans before deciding to fix for a long time.

What are variable rate mortgages?

Although variable rate mortgages are usually lower, the amount you’ll pay will change depending on the movement of interest rates. Unlike a fixed rate mortgage, in which you’ll pay the same amount every month, you could end up paying more or less each month, so it’s important to make sure you have some savings set aside just in case rates rise and your payments increase.

There are several different types of variable rate mortgages, including standard variable rate, discount mortgages, capped rate mortgages and tracker mortgages.

Standard variable rate (SVR)

Standard variable rates are set by lenders, with each lender setting their own rate, which will fluctuate according to market conditions. It’s the type of mortgage you are most likely to be transferred onto after completing a fixed, tracker or discounted mortgage, and will last as long as your mortgage or until you take out another deal; remember that at that point, you may be charged further fees for the new deal.

Standard variable rate pros Unlike a fixed rate, you are not tied in. You can overpay or leave at any time without having to pay charges.

Standard variable rate cons Your payments could go up or down at any time during your loan depending on the rates set by the lender.

Discount mortgages

This type of mortgage offers a discount off the lender’s SVR, and normally only applies for a few years, normally two or three. But while discount mortgages can be appealing, it’s worth shopping around and doing your research.

While one lender may seemingly have a bigger discount than another, don’t forget that their SVR vary too, so a bigger discount doesn’t necessarily mean a lower interest rate. If a bank has a smaller discount off a smaller SVR, that could be a better option than a bank with a bigger discount off a bigger SVR. If the lender charges a fee, this has to be taken into account when assessing the advantage of a discounted rate.

Discount mortgages pros As the rate starts off at a discount, monthly repayments will initially be lower.

If the lender lowers its SVR, you’ll pay less every month.

Discount mortgages cons As with any SVR, the lender can raise the rate at any time, meaning you could end up paying more.

If you want to leave before the end of the discount period, you may have to pay penalty fees.

Tracker mortgages

Tracker mortgages directly track another interest rate, usually the Bank of England base rate. For example, the interest rate will be equal to the base rate plus 2%; if the base rate goes up by 1%, the tracker rate will go up by 1%.

Tracker mortgages usually last only a few years - normally between two to five years - although there are some lenders who offer lifetime tracker mortgages, some of which are penalty-free if you want to opt out early.

Tracker mortgages pros If the rate your mortgage is tracking falls, so will the amount you pay.

Tracker mortgages cons If the rate your mortgage is tracking rises, so will your payments.

You may have to pay penalties if you decide to switch mortgages before the end of your deal.

Things to look out for with tracker mortgages Make sure you check that your lender cannot increase rates even when the rate your mortgage is tracking hasn’t moved. While it’s unlikely, it has happened so it’s better to be safe than sorry.

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Capped rate mortgages

With capped rate mortgages, your rate corresponds with the lender’s SVR, but is capped so that the rate can’t rise above a certain point.

Capped rate mortgages pros You can enjoy the certainty that your rate will never go above a certain level, (although you should make sure that you would be able to afford it if the rate did rise to the maximum point).

Your monthly payments would be lower if the SVR falls.

Capped rate mortgages cons The rate is normally higher than other fixed and variable rates, and the cap is usually set at a high level. Your lender can change the rate at any point under the level of the cap.

When choosing what mortgage to go for, it’s important to focus not only on on the interest rate and fees you’ll be charged, but also the type of mortgage that’s best for you.

While comparing different types of mortgages, remember to look at the fees for taking them out, the long-term costs and the exit penalties should you decide to leave the deal early.

Regardless of what rate you opt for, the main basis of your mortgage will be how you aim to repay the loan. There are essentially two options: repayment mortgages or interest-only mortgages.

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What are repayment mortgages?

With a repayment mortgage, you pay off a bit of your debt every month, as well as interest on the loan. Once the term is over, you do not owe any more money and the loan will have been cleared. In the early years of your mortgage term, as the debt you owe is larger, most of your monthly payments go towards the interest. But as the years go on and you chip away at your outstanding debt, most of the repayments you’ll make go towards paying off the debt.

Repayment mortgages pros

Repayment mortgages are normally considered to be the most straightforward type of mortgage, with the least risk involved. They are also much easier to get than an interest-only mortgage, especially for first-time buyers.

Repayment mortgages are also the only option that guarantees you’ll be debt-free at the end of the mortgage term. They also mean that - because you’re paying off more of your debt each month - once it comes to remortgaging, you’ll be able to get a better mortgage deal.

Repayment mortgages cons

You will have to pay more than an interest-only mortgage each month as part of your repayment, because - don’t forget - you are also repaying some of your debt.

What are interest-only mortgages?

With an interest-only mortgage, each month you will pay off the interest on the money you have borrowed, but not the capital. Instead, once you come to the end of the mortgage term, you must repay the capital in full. The only way you can reduce the capital with an interest-only mortgage is to overpay each month, or to set up some savings to grow every month to repay the loan.

However, these mortgages are becoming much harder to get, with lenders concerned about homeowners being left with a huge debt at the end of the term with no way to repay it. In the past, many borrowers took out interest-only mortgages without ensuring they could pay off the capital at the end of the term, relying instead on the assumption that their properties would grow in value and they could sell or refinance them. Of course, this created issues when property prices fell, or stayed the same, so now lenders have moved away from interest-only mortgages.

Borrowers keen to take out one of these mortgages now have to show the lender how they can repay the mortgage at the end of the term, and have to prove that they have a credible repayment plan once it comes to paying back the loan.

Interest-only mortgages pros

They are often cheaper than a repayment mortgage, in the sense that the amount you pay every month is lower - although remember you are not paying off the capital.

Interest-only mortgages cons

Homebuyers need to prove that they will be able to repay the capital once it comes to the end of the mortgage term or you won’t be able to get this type of mortgage. If you do, but you don’t have the funds to repay the loan once it comes to the end of the term, you would have to sell your property unless you can remortgage.

Apart from these two clear-cut repayment models, there are further variations offering you different flexibilities, such as cashback mortgages and offset mortgages.

What are cashback mortgages?

When you take out a cashback mortgage, you are given some extra cash, which could be a percentage of the amount you’re borrowing or a fixed amount.

Cashback mortgages pros

It can be helpful to have some cash to start off with to help with the costs of moving, for example to pay for renovations or buying items for your new home.

Cashback mortgages cons

There is often a higher interest rate charged with cashback mortgages, so make sure you are doing your research properly so you don’t end up paying more in the long run.

What are offset mortgages?

Offset mortgages help you to clear your mortgage early by linking your savings account to your mortgage so that you only pay interest on the difference. You still make monthly repayments, but as your savings act as an overpayment, wiping out more of the interest every month, you can be mortgage-free sooner but still have access to your money if you need it.

They are also a popular choice for borrowers whose families can help them cope with their mortgage, as the savings account need not be that of the borrower, so the family’s savings can be put to good use, helping to reduce the amount on which interest is calculated, without having to actually give them money to reduce their mortgage.

Offset mortgages pros

As you are repaying your mortgage more quickly, it could cost you less overall.

If you use your savings to reduce your mortgage interest, you won’t pay tax on the revenue which would otherwise be earned on your savings.

You can get access to your offset savings easily, whereas on another type of mortgage, if you overpaid, you wouldn’t be able to get your money back.

It’s a popular way for families to help borrowers on the property ladder without actually having to give them money.

Offset mortgages cons

Offsets are normally at a higher rate than standard mortgages, so make sure you are getting a good enough deal before you opt for an offset mortgage.

If you are struggling to raise even a small deposit, guarantor mortgages can be an option.

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What are guarantor mortgages?

With a guarantor mortgage, someone other than the borrower will accept full responsibility for the borrower’s mortgage. The guarantor will give the lender confidence that the money they are lending will be paid on time and in full: essentially, agreeing to step in and cover repayments if the borrower fails to make them. This is obviously a big risk for the guarantor, but also for the bank, as the financial circumstances of the guarantor may change by the time the borrower defaults.

Guarantor mortgages pros

It can be a good way for parents to help out their children if they are struggling to put together a deposit and the parents are not cash-rich.

Guarantor mortgages cons

Guarantors are taking on a serious financial burden with no benefit to their own finances, and could risk losing their own homes if the worst should happen and the borrower was unable to keep up payments.

There are also many types of mortgages if you characterise them according to interest rates.

Thinking of selling your house or flat? Drastic home improvements may be out of your budget (and are often unnecessary anyway) but there are lots of cheaper ways you can make your home look more attractive to both the estate agents who come to value it and prospective buyers who come to view it.
So, if you want to know how to sell your house fast, read on for some handy house-selling tips which could you help you get a better price and even better offers for your home.

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1. Keep it clean

It may sound really obvious, but keeping your house looking clean, fresh and bright is really important so don't get lazy! You may need to paint a couple of rooms to make them look homely - Wickes, Wilko's, B&Q and the supermarkets all sell cheap/own-brand paints so it won't cost much. Use subtle air fresheners to add a lovely scent to the air and have fresh flowers in a vase for a homely look. Make sure kids' mess is cleared up and pet smells are neutralised. Potential new owners need to picture themselves in your place so do what you can to make them think they could live there too. Some people get professional cleaners to clean the windows, sofa covers and carpets as it can make the house gleam.

2. Stop procrastinating!

We bet you've had lots of little jobs lying around, waiting to be done and still on the to-do list. It could be repairing that hinge on the kitchen door, cleaning that awkwardly located window, re-grouting the bathroom tiles or fitting those new light shades. Do these now. They are small touches but they will make your home look finished and in order. These jobs don't cost much, if anything at all, but will create a good first impression.

3. Update and modernise

You don't need to spend silly amounts of money on home improvements at this stage, but updating rooms, especially bathrooms and kitchens, can be worth it. If you kitchen is out-of-date, consider replacing the cupboard doors and drawer fronts or having a smart, modern lino floor laid down. Older-style bathroom suites can also let the side down. Again, there's no need to have a brand new suite installed – think about new taps, replacing the shower curtain or screen and getting new, bright, fluffy towels and bath mat.

4. Re-order rooms

Depending on who you are selling your home to, it might be a good idea to re-arrange the space. If you've turned a bedroom into an office, it may be worth turning it back into a bedroom (if families are going to be your main buyers) or you could combine a study with a futon bed if you want to appeal to young families or couples. Rooms should be shown to their maximum potential so if a room can be a double room, get rid of the single bed and show off the room as a double.

5. Make it neutral

Over the years, your home can easily begin to resemble a summary of your life so far - pictures pinned to the fridge, souvenirs from holidays and ornaments dotted about the lounge. While it's not a bad thing to have some of your personality and family life on display (it can make the place look cosy), too much of it can make it hard for a prospective buyer to picture your home as their future home.

6. De-clutter

It's really important to get rid of any surface junk in your house before any viewings. If you've got bulky pieces of furniture taking up valuable floor space, try and get them into the garage. Clear away coats in the hallway if they're all piled on top of each other. Clear the surfaces of odds and ends, hide bathroom products to make the room look bigger and cleaner, and replace old towels, bathmats and dish clothes.

7. Get into the garden

The garden is now seen as an additional room so if yours looks more like an urban jungle than a relaxing retreat, it might be time to take a pair of shears and a mower to it. You don't need to spend lots of money but make sure it looks trim and tidy. Get rid of weeds, cut back hedges and add a couple of pretty plant pots to give the space some colour. If it's a nice day at the time of viewing, get the patio furniture out to make it look even more inviting.

8. On the day

First impressions really do count so make sure the front of your property looks as clean and fresh as the interior and the garden. If you have a front garden, make sure it's in good condition and ensure any rubbish bins are not particularly smelly that day! Don't cook any strong-smelling food or smoke in the house while you're trying to sell it as it won't go down well. If at possible, try to make it easy for the buyer to park (if that's in your control).

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9. Agent briefing

Estate agents are well versed in how to sell a home but make sure they know what improvements you've made so they can flag them up to potential buyers. It could be newly installed double glazing or central heating. Also mention your favourite features so they can get a real sense of why you like living there – it could be a sunny south-facing garden, free parking, friendly neighbours or the great schools nearby.