Best First Time Buyer Mortgage

publication date: Feb 16, 2011
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Best First Time Buyer Mortgage

 

Understanding the Different Types of Mortgage


When finding the best first time buyer mortgage for you, it is important to first understand the different types of mortgages to choose from. You also need to be aware of what ‘tricks’ mortgage lenders use to make you think this is the best first time buyer mortgage for you, when if you had professional help from a mortgage broker or independent financial advisor, then they would be able to find the best first time buyer mortgage for your circumstances.

When searching for a first time buyer mortgage, it is easy to be confused by lots of different mortgages on offer. To make it easier, there are only really two types of mortgages:-

  • Repayment Mortgage
    This is where you make a monthly payment which consists of two payments to the lender. One is to pay the interest on the money you have borrowed and the second pays off some of the capital that you have borrowed. For example, if you borrow £100,000 over 25 years, on a repayment mortgage with a 5% mortgage interest rate, your monthly payment will be:-

    £591.27 of which £174.60 will be to pay off the loan and £416.67 is the interest payment on the £100,000 you have borrowed. Each year you pay the £591.27, the amount you owe will reduce, so the more of the £100,000 you pay off each year.

    If you continue to pay this amount each month, after 25 years, you will have paid off both the interest and the money you borrowed and the home will be yours.
  • Interest Only Mortgage
    This is where you only pay the interest on the loan. So taking our example above, you will pay £416.67 for the lifetime of the mortgage provided that the 5% mortgage rate remains the same throughout the mortgage.

    Once you have decided whether you want a repayment or interest only mortgage, then you need to work out what type of interest rate will be applied to the money you borrowed.

Also read our article - Which is Best First Time Buyers' Mortgage?

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