Mortgages can seem like a difficult concept to tackle. With the constantly growing range of mortgages types being offered by banks and building societies, the complexities of mortgages tend to baffle the ordinary individual. But in reality, underneath all the new names and titles, mortgages revolve around two things: how you pay back the capital you borrow and how you pay the interest on it. In general, there are three different mortgage types:

Repayment Mortgages. Considered safe and easily understandable, this mortgage type is common. Every month, you pay off part of the interest, as well as part of the principal. This occurs until the end of the term of the mortgage, when the mortgage is finally cleared. The danger is that if you do not consistently pay, the lender can repossess your property.

Interest-only Mortgages. Growing in popularity, especially among first-time buyers and investors, this mortgage type lets you pay off the interest only. By the end of the mortgage term, you have to pay the full amount of the capital, whatever it may be. The problem with this type of mortgage is that if the time leading to the end of the term is ill-planned, payment of the lump sum of the capital may be difficult.

Endowment Mortgages. Less popular than it was in the past, endowment mortgages are investments risks. These work when you use an endowment policy which provides life insurance and saves funds that will repay the loan when the term ends. These mortgages usually last from twenty to twenty-five years. The main risk lies in the possible shortfall on your loan at the latter part of the repayment period. This may happen if the investment performs poorly.

There are also eight specific different mortgage types that one has to consider:

First, is the fixed rate mortgage. It is a type of mortgage that is fixed for the entire term of the loan, and thus has no provision for the changing interest rate.

Next, is the variable rate mortgage. With this particular mortgage, you pay the lender’s standard variable rate of interest, also called the SVR. An attribute of this type is its great link to market conditions.

A quality of the current account mortgage is a very large overdraft. This is due to way this type combines your current account with your mortgage.

A discount rate mortgage is characterized by the fact that the interest rate that one pays is set below the standard variable rate of interest for a specific period. This is similar to the variable rate mortgage because it, too, succumbs to market conditions.

A cashback mortgage is different because one you have finished your purchase of a property, you will receive back a lump sum of money. These also come with certain restrictions, which are related to the repayment of the cashback.

The offset mortgage considers the funds that are placed within current or savings accounts when interest is being calculated. However, with offset mortgages, separate accounts are possible.

A flexible mortgage, also called personal choice mortgage, is adaptable to the borrower’s financial circumstances. There are many different possible features that can be offered with this mortgage, including lump sum payments, monthly overpayments, etc.

A capped rate mortgage is a combination of both the fixed rate and discount rate mortgage.

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