Here, we give you just a brief outline of some of the major terms you will come across in mortgages. Please read our full 'Guide to Mortgages' for more detailed information.

What is a Mortgage?

A mortgage is like any other kind of loan - you borrow money, and you pay it back with interest over a period of time. But it has one main difference: it is secured against your home. So if for any reason you can't repay it, the lender can sell your home to recover their money.

A Buy to Let property is a long-term investment, which you hope will generate an income from rents and a capital gain when you sell the property. There is no guarantee that you will make a profit on your investment. The FSA do not regulate some buy to let mortgages, so there is less protection if something goes wrong.

Types of Mortgage

There are two types of mortgages: Repayment and Interest Only.

Repayment - every month, your payments to the lender go towards reducing the amount you owe as well as paying the interest they charge. So each month you are paying off a small part of your mortgage.

Positives : It is a simple, clear approach - you can see your loan getting smaller.
Negatives : In the early years your payments will be mainly interest, so if you want to repay the mortgage or move house in the early years, you will find that the amount you owe will not have gone down by very much.

Interest Only - your monthly payment only pays the interest charges on your loan, you are not actually reducing the loan itself. This is why it is very important you should arrange some other way to repay the loan at the end of the term; for example, through an investment or savings plan.

Positives : Because you are only paying off the interest, and not the loan itself, your monthly payments will be lower.
Negatives : That debt is not going to go away. Throughout the life of the mortgage, you'll need to check your investment or savings plan is on track to repay your loan at the end of the term. If you cannot repay it at the end of the term you could lose your home.

Types of Mortgage Rate Deals

There are five main types of interest rate deals, these are fixed, tracker, discounted, capped standard variable.

Fixed rate mortgages are one where for a period of time the interest rate is set and will not be affected by changes in interest rates. At the end of the period the interest rate will become the variable rate applicable at that time (see variable rate). Usually the rate is fixed between 2 and 5 years, although longer periods are usually available.

Discounted rates, gives you a guarantee that for a period of time your interest rate will remain at a fixed percentage below the variable rate. Therefore, if the current variable interest rate is 7% and your rate is discounted by 2%, your mortgage would be on a rate of 5%. If the current variable interest rate were then to increase by 1%, your rate would increase by 1% in line with it.

Tracker rates are set above or below the Bank of England (or some other) base rate, it tracks (moves up or down with) that rate. For example, the rate you pay may be 0.25% above the Bank of England base rate, whatever it may be, for say a period of 2 years.

Capped rate mortgages, puts a ceiling on the rate for a period of time. This means that the payments cannot go above the rate set during that time. Payments will reduce if the interest rates go down.

Variable rate mortgages are one that changes when the lender announces interest rate changes. So unlike a fixed rate, if the mortgage rate goes up then you will be paying more each month. Equally, if it goes down then you pay less. Usually less restrictive, but the rate is higher than most.

The Costs

There are a number of costs associated with mortgages and moving home:

Stamp Duty - government tax levied on the purchase price of the property you are buying. Some areas qualify for exemption. Current tax bands are:

£0 - £125,000 = 0%; £125,001 - £250,000 = 1%; £250,001 - £500,000 = 3%; £500,001 plus = 4%.

Legal Fees - a charge for legal and administrative work to transfer the ownership of a property from one party to another, work includes searches for Land Registry, Bankruptcy and Local Authority. Fees vary from firm to firm.

Valuation Fee - a mortgage valuation is usually paid for by yourself on behalf of the mortgage lender, providing a valuation and current condition of the property you are buying. A more detailed and costlier Homebuyers Survey/Report can be obtained, and sometimes a Full Structural Survey for much older properties.

Lenders Fee - a fee to apply for the mortgage paid to the lender. It can be paid up front or usually be added to the mortgage debt ( by adding any fees to the mortgage, over the long term this will increase the amount/fee to be paid, as you will pay interest on this over the term of the mortgage).

Higher Lending Charge - an insurance policy that covers the lender, should they take possession of your property, following non-payment of your mortgage. Protects the lender but the borrower pays the premium, usually over 90% loan to value. Can be added onto the mortgage, but again, interest charged and increases the debt over the term of the mortgage.

Broker Fee - A.N.A. Associates Ltd may charge an arrangement fee depending on your circumstances of up to £500. This fee is for work undertaken and to support your application. This will be discussed with you by your adviser and contained within the Key Facts, about your mortgage letter and in the Key Facts Illustration.

The above is just a brief summary of mortgage information you will entail, please download and save/print our full Guide to Mortgages for your records.