Mortgage Types

Below is a list of the different Mortgage types that are available through Gem Mortgages. By clicking on any of the links information on that particular type of mortgage will appear, alternatively, you can scroll down through the various types.

These descriptions are a guide to the type of mortgages available to help you through some of the terms and langauge used when applying for a mortgage.

Self Certification Mortage
Buy To Let
Combination Mortgage
Flexible Mortage
Overpaying
Underpaying
Payment Holidays
Borrowing Back
Repayment Mortgage
Interest-Only
Cash Back Mortage
100% Mortage
Fixed Rate Mortgage
Capped Rate Mortgage
Discount Rate Mortage
Tracker Rate Mortgage

Self Certification mortgageSelf-certification – or a self cert mortgage – is a way of detailing your income without having to provide proof of income.

This type of loan is typically designed for people whose "full" income is difficult to assess using the conventional methods. Self certification products are especially suitable for potential borrowers whose income is dependent on bonuses, as well as workers on short-term or part-time contracts. A self cert mortgage may also be used by self-employed borrowers who do not yet have sufficient accounts to prove their income.

Please note however that most mortgage lenders will only allow you to use a self cert product if you want to borrow less than 75% to 85% of the property's value. In addition self cert mortgages are often on a slightly higher interest rate than similar products where standard income assessments can be used.

Buy-to-let mortgage

Designed for the property investment market, there is a huge range of buy-to-let products, ranging from special offer deals to fixed and variable rate loans. Be aware that some lenders will only consider your rental income when offering a mortgage, while others will place more emphasis on your normal earnings, especially if you only have one or two rental properties.

The anticipated rental income must exceed the mortgage repayments by a certain percentage, and the lender will also want to ensure that the property is a good long-term investment. Generally buy-to-let mortgages are available for between five and 45 years and for up to 85% of the property value.

There are specific rules and regulations that are relevant to this particular type of mortgage. For more information, see the dedicated page by clicking on the link in the left hand menu.

Combination mortgage

With a combined mortgage a proportion of the loan is treated as an interest only mortgage and the remainder as a repayment mortgage. Therefore, you will use both repayment and interest-only methods to repay the loan.
This type of loan is generally used by people who already have an investment policy in place, such as endowment policy or an ISA. The proceeds of this policy can then be used to repay the capital on the interest only element of the mortgage at the end of the term.

Flexible mortgage

A flexible mortgage provides you with the ability to vary your monthly repayments. The advantage is that if you have extra money, you can make overpayments and thereby pay your mortgage off early so reducing its overall cost. Additionally, if times are lean, you can also make underpayments or even put payments on hold (take payment holidays). You can even borrow back your overpayments for large or unforeseen expenditures. In exchange for this flexibility these mortgage products usually have a higher interest rate.
Remember, we will help you choose the flexible mortgage deal that suits you best.

Overpaying

Most borrowers who choose a flexible mortgage will tend to make overpayments. This means that they will be able to make additional mortgage payments in excess of the required monthly figure. The outcome being that the mortgage debt will be paid off earlier, possibly saving thousands of pounds in interest payments. So if you can afford to make some overpayments why not do so? Even overpaying by just a small amount will help reduce your mortgage term.

Underpaying

With a flexible mortgage package, you should be able to pay less than the agreed monthly amount. However, you must have already made some overpayments and your total sum of underpayments must not be greater than the total sum of your overpayments. Be aware that underpaying will add time to the length of your mortgage term, but it could come in handy in months where you need to keep a check on your spending!

Payment holidays

Some flexible mortgage deals allow you to take a complete break from making mortgage payments for up to a year. This could be useful in a number of ways – for example if you are thinking of starting a family, or embarking on a new business venture.

You will have to have built up sufficient overpayments to cover the period you take off. And some mortgage lenders may only let you take a couple of months’ payment holiday each year. Speak to us if you think that this option might be useful.

Borrowing back

Borrowing back overpayments you have made is an ideal way of obtaining extra cash for a specific purpose.
This is one area where flexible mortgages are particularly attractive as, rather than your spare cash earning a low rate of interest in a savings account, the amount you over pay is taken off your mortgage. As such, you are – in effect – earning the mortgage rate on your savings.

Moreover, with borrow back, it’s like you have an instant access savings account at a higher rate. So if you want to buy something costly, or you run into unforeseen expense, your money is at hand straight away.

Calculating interest daily

For flexible mortgages, interest is normally calculated daily, and any payments and overpayments are credited to your mortgage account as soon as they are paid.

This saves you money immediately with interest charges that would otherwise add up over a number of years. Mortgage interest had previously been calculated and applied annually in arrears, meaning that you would be paying interest on the same amount of debt all year, even though the outstanding amount might have been decreased during that time.

Early repayment charge

An early repayment charge is a fee you may be required to pay to your lender if you wish to repay your mortgage within a specific timeframe.

Early repayment charges only apply to specific discounted, fixed, capped or other incentive schemes where the lender is providing for example a special reduced interest rate for an initial period. Usually the term during which this payment can be claimed will match this incentive period, however, for some products this can extend beyond the incentive phase.

Typically a repayment charge will be a set figure or commonly a percentage of the outstanding mortgage amount e.g. 2%. Additionally the amount you are required to pay may vary slightly depending on how long you have had the mortgage.

With a conventional standard variable rate mortgage, you can change between products without incurring a penalty.

Standard variable rate mortgage

A standard variable mortgage is based on the lender’s basic mortgage rate, commonly known as the (SVR). This is usually the rate that you will revert to once a discount or other incentive period ends.
The interest rate for this type of mortgage rises and falls in response to changes in the Bank of England (BOE) base rate. Lenders are free to decide for themselves the amount that they will alter their own interest rates by in relation to these movements in base rate.

Repayment mortgage

With a repayment mortgage you make monthly payments that cover both the interest on the loan and the repayment of the capital itself. As such, a repayment mortgage guarantees your loan will be paid off in full at the end of the term as long as the required monthly payments are maintained throughout.

Interest-Only Mortgage

With an interest-only mortgage you only pay off the interest on the loan. You do not pay off any of the outstanding debt until the end of the term.

In order to pay off the original loan amount you will need to take out some form of savings plan which you will need to pay into in addition to the interest only mortgage amount that you will be paying each month. It is your responsibility to ensure that you have sufficient funds to repay the full capital amount at the end of the agreed mortgage period.

Cash-Back Mortgage

Cash-back mortgages are often aimed at first time buyers, as the lender will pay a lump sum of cash, generally at the start of the mortgage which can greatly assist with some of the initial costs of setting up home.

Similarly to fixed or discounted rate mortgages the lender will often offer the loan based on a minimum contract period. If the loan is repaid before this period expires, e.g. if you wish to re-mortgage then the lender may request that some or all of the cash back is also repaid.

100% mortgage

A 100% mortgage is designed to cover the full value of a property, without the need for a separate deposit.
This type of mortgage is popular among first time buyers because, although you will pay more interest each month, you may be able to buy a home sooner rather than waiting until you have managed to save enough for the deposit.

Some mortgage lenders offer loans in excess of 100% - ask your Gem Mortgage advisor for more details.
You should be aware however that 100% mortgages are not suitable for everyone. In a falling property market, you may end up owing more than your house is worth – so-called Negative Equity. As such, you should always seek professional advice before deciding on which type of mortgage is the most suitable for your needs.

Fixed rate mortgage

A fixed rate mortgage enables you to know exactly what your monthly payments will be for a predetermined period of time, regardless of any movements in the BOE base rate.

If the interest rate rises above the fixed rate that you are paying, you will actually save money. However, the reverse of this is also true. If the interest rate goes down while the fixed rate deal is in place, you may end up paying more than a comparable standard variable rate (SVR) product!

Once the fixed time period expires your mortgage repayments usually switch to the mortgage lender's standard variable rate.

Generally with a fixed rate product there will be an associated "contract" period during which an early repayment charge may be applied if the mortgage is repaid. Note the "contract" period may well extend beyond the period during which the rate is fixed.

Capped rate mortgage

As it suggests, a capped rate mortgage places an upper limit on the interest rate that the lender can charge. As a borrower, you have the security of a ‘ceiling’ to the amount that the lender can increase your mortgage interest rate to.

The capped interest rate period is for a specified duration, usually between one and five years. At the end of this period, the mortgage will usually revert to the lender's Standard Variable Rate (SVR).
Be aware that some capped rate mortgages also have a ‘collar’ or lower limit below which the interest on your loan cannot fall.

Some lenders may attach an early repayment charge for full repayment of the mortgage during, and often for a limited period after your capped period has ended.

Discount rate mortgage

This type of mortgage rises and falls in response to movements in the lender’s standard variable rate (SVR), however the amount payable will be a fixed percentage less than this SVR during the discount period.
Discount rate mortgages are often considered by first time buyers where initially the income may be stretched but, where salary increases may be anticipated, for example at the end of an initial training period. They can also be useful the for new home owners as they can help to free up some money during the early stages to pay for additional expenses such as furniture and decoration.

Typical discount periods can last from six months to about five years. It’s worth noting that generally the shorter the period of discount, the higher the discounted rate will be. However, some lenders may attach an early repayment charge for full repayment of the mortgage during, and often for a limited period after your discount period has ended.

Tracker rate mortgage

A tracker rate mortgage rises and falls in line with the base rate set by the Bank of England.
The tracker mortgage rate will, for a predetermined period, be set at a percentage that is a fixed difference slightly higher than the BOE base rate.

Generally a tracker mortgage will be set at a rate that is lower than the lender’s SVR product.
Because this type of mortgage tracks the Bank of England base rate, if the bank’s base rate falls, the interest payments on your mortgage loan will fall accordingly, no matter how low the base rate goes. Don’t forget however that the bank’s base rate can rise as well as fall which can make budget planning difficult.