Switching your mortgage
Reviewing your mortgage can be one of the most effective ways to save money, but the huge array of mortgages on offer can make the process of choosing a new mortgage seem like a bit of a daunting task. Around half of all borrowers are stuck with a 25 year standard variable rate mortgage, which is the least competitive home loan of them all. If you fall into this category, you could stand to save a huge amount of money by switching to a different deal, not to mention shortening the length of your mortgage. Here is a guide to some of the different types of loan that are available. Visit Santander.co.uk for more information about the different types of Santander mortgages, and some highly competitive deals
Interest-Only Mortgages
These were very popular when interest rates were much higher than they are now, simply due to the high cost of borrowing. The idea behind an interest-only mortgage is that you only pay the interest on the loan, and pay off the full value of the loan at the end of a mortgage via an investment vehicle such as an ISA or a pension. This can be a risky strategy, as if your investment does not grow enough over the course of the mortgage, you could be left with a shortfall. This type of mortgage became a lot less popular in the wake of the endowment mis-selling scandal of the 1990s.
These are considered to be safer than interest-only mortgages, as your repayments go towards the capital sum as well as the interest. This makes them a more expensive option than interest-only mortgages in many cases, but many people feel that the added peace of mind is well worth paying for. In the early years of a repayment mortgage, most of the repayment goes towards the interest, but as the outstanding balance decreases, the interest payments reduce accordingly and you start to chip away at larger and larger chunks of the capital sum.
Standard variable rate
With this type of mortgage, the amount of interest that you have to pay tracks the Bank of England base rate, with an additional 1.5% on the top. Although these are rarely the best deal available, they are nonetheless heavily marketed by lenders, as they can make more money from this type of mortgage.
Fixed rate
With a fixed rate mortgage, the repayments are fixed for a period of two to five years, and sometimes even more, after which it reverts to a Standard Variable Rate. Although there is a danger you could be stuck with an uncompetitive deal, fixed rate loans are easier to budget for, and can save you a lot of money in the right circumstances.
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