Understanding different mortgage types

Mortgages

A mortgage is essentially a large loan which is secured for the purposes of buying a property. Most people would be unable to buy their first house or flat without securing a mortgage. Banks and building societies are the typical mortgage lenders which are used, however there are also insurance companies and specialist mortgage companies who provide this service. A mortgage loan will be repaid, with interest, over a predesigned period of time. This period will often be twenty-five years; however it can vary depending on the loan. The total amount to be repaid will be determined by the interest rate on the loan. This rate will vary according to the type of mortgage secured and the percentage of the cost of a property which the loan covers. Mortgages will typically be either a fixed rate or a variable rate which changes with inflation. In general, the higher the percentage rate is, the higher the interest rate will be.

First Time Buyer

A person who is trying to secure a mortgage, and who has never owned any property previously, is referred to by mortgage lenders as being a first time buyer. Becoming a first time buyer is usually seen as being preferable to renting a property, and is known as taking the first step on the property ladder. However, it is often difficult for people to secure their first mortgage. They must have some savings to use as a deposit, and have the salary or finances to be able to afford the monthly repayments. Due to their unique status, first time buyers are treated differently than other debtors by mortgage lenders, and many of these institutions offer a range of specialist first time buyer mortgages.

Home Mover

A home mover is a property owner who has elected to relocate from their current house to a new property. This is a two stage process, in that they must sell their current property to a buyer in addition to securing a mortgage to buy a new one. A home mover will generally be able to secure a larger amount of money as a mortgage loan, as they will ideally have funds from the sale of their house to use as a deposit. A home mover will use those funds to pay off their existing mortgage, and the money which is left can be used as a deposit for a new mortgage. As a result of the larger deposit that mortgage will have reduced monthly repayments.

Buy To Let

A buy to let mortgage is secured on a property with the intention of renting it out to tenants. A person who takes out this type of loan is therefore a landlord. This includes professional landlords who might own several properties, and amateur landlords who would perhaps buy a property to rent out as an investment. A buy to let mortgage differs from a typical one in the way in which it is calculated by lenders. Whereas an owner-occupier mortgage will be based on the applicant's annual salary, a buy to let mortgage will be calculated according to the amount of monthly rent which could potentially be earned from a proposed property.

Commercial Mortgage

A commercial mortgage is taken out to purchase a commercial property, such as a shop. They are generally secured by businesses rather than individuals, although this is not exclusively the case. Commercial mortgage loans are often for large sums of money when they are secured by companies to purchase substantially sized commercial properties. As such, they can be very complicated to negotiate, however mortgage lenders are usually keen to provide commercial mortgages to businesses due to the larger levels of repayments they receive.

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