Mortgages UK presents the very latest information on Mortgage Rates

When it comes to applying for a mortgage you have to decide whether you are going to choose an interest only, current account or repayment type mortgage.

Repayment is concerned with the borrower paying back a proportion of the loan each month then paying interest on the amount that remains. This is the most common mortgage that borrowers choose to pursue with the majority of products allowing flexible payments to be made. This permits the borrower to make under or overpayments every month on the condition that they build their own buffer zone, from the additional payments, to which the lender will use to cover the difference when an underpayment is made.

Interest only has a much higher risk as you simply pay the interest that is on the mortgage in monthly payments for a fixed term that has been agreed with the lender and the borrower. Once that term has concluded then the borrower should either remortgage, pay one lump some to clear the balance or begin to pay the remaining figure through more substantial monthly payments.

Current account allows for your mortgage, savings and cheque accounts to be amalgamated into one large loan which can then be drawn into or from at the discretion of the borrower. As long as the borrower can be disciplined and responsible then this is probably the most economical process to manage his finances.

Once you are sure about which one of the three mortgage types you wish to use it is vital that you find the right lender to provide the loan. There are so many banks and building societies in competition with each other that the rates they currently offer are almost identical subject to certain terms and conditions. That’s why it pays to do as much research as possible. Choosing a mortgage that differs from another by 0.1% can save you thousands of pounds. Also the repayment period can contribute to the overall figure being inflated if you are tied into a long term contract.

An example
Bank Gamma proposes an interest rate of 6.5% on a mortgage of £200,000 over 40 years. Therefore, the borrower will be required to pay £213,000 to the lender throughout the duration of the repayment period. However, Bank Zulu proposes 7.5% on the same mortgage value and over the same period of time. This implies that the borrower is required to pay £215,000 to the bank as the interest has enlarged the entire balance by £15,000, £2,000 more than what Bank Gamma proposed.