Mortgage Services are legal instruments which are used to create a security interest in real property held by a lender as a security for a debt, usually a loan of money. A mortgage in itself is not a debt, it is the lender’s security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than on other property (such as ships) and in some jurisdictions only land may be mortgaged. Mortgage services are standard methods by which individuals and businesses can purchase real estate without the need to pay the full value immediately from their own resources.
Types of Mortgage Services
Below is a list of different types of mortgage services you can easily find in the world:
- Discounted rate.
- Capped rate.
- Fixed rate.
- Standard variable rate (SVR).
Discounted Rate Mortgage
A discount mortgage is a home loan where the interest rate is pegged at a set amount below the lender’s standard variable rate (SVR) for either a set period (e.g. two or five years) or for your whole mortgage. Over a set period of time, you get a discount on the lender’s SVR. This is a type of variable rate, so the amount you pay each month can change if the lender changes their SVR, which the choice is based on the to make.
Tracker rates are a type of variable rate mortgage, in which the amount you could pay your lender each month is different a different. The Tracker rates work by following a particular interest rate to determine what you pay each month (for example, the Bank of England base rate), then adding a fixed amount on top. If the base rate goes up or down, so does your interest rate.
Capped rate mortgages are a type of variable rate mortgage, but with one important difference: they have an interest rate ceiling, or cap, beyond which your payments can’t rise. A capped rate is normally only for an introductory period. Typically anything from two to five years.
When you sign up to your mortgage, the lender pays you a lump sum of cash (usually, a percentage of your loan). This can be around £500–£1,000. You might find that these mortgages don’t come with other incentives, like free valuations. Your broker can check which mortgage works out the best overall.
Mortgages explained The different types of mortgages
The different types of mortgages
What’s the difference between a repayment, interest-only, fixed and variable mortgage? Find out here.
In this type of mortgage, every month, you steadily pay back the money you have borrowed, along with interest on however much capital you have left. At the end of the mortgage term, you will have paid off the entire loan. The amount of money you have left to pay is also called ‘the capital’, which is why repayment mortgages are also called capital and interest mortgages.
Over the term of your loan, you don’t actually pay off any of the mortgage – just the interest on it. Your monthly payments will be lower, but won’t make a dent in the loan itself. At the end of your term, you have to pay the total amount in full. Usually, people with an interest only mortgage will invest their mortgage, which they will then use to pay the mortgage off at the end of the term.
Fixed Rate Mortgage
‘Rate’ refers to your interest rate. With a fixed rate mortgage, your lender guarantees your interest rate will remain the same for a set amount of time (the ‘initial period’ of your loan), which is typically anything between 1–10 years. When this initial period ends, you’ll be switched to the lender’s default rate (or standard variable rate).
Standard variable rate (SVR)
SVR is a lender’s default, bog-standard interest rate – no deals, bells or whistles attached. Each lender is free to set their own SVR, and adjust it how and when they like. Technically, there isn’t a mortgage called an ‘SVR mortgage’ – it’s just what you could call a mortgage out of a deal period. After their deal expires, a lot of people find themselves on an SVR mortgage by default, which might not be the best rate for them.
Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property. The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries.