Mortgage are loans specifically borrowed to purchase a property

A mortgage is a loan specifically borrowed for the purpose of buying a property. The loan plus the interest has to be paid back over the specified period of time which could be anywhere between 10 and 30 years. If the loan is not repaid, the lender can repossess the property and sell it to recover the loan.

There are two types of repayment methods for mortgages each with different sets of rules, repayment mortgage and interest only mortgage:

• Repayment Mortgage
  With a repayment mortgage you repay the loan amount with the interest with one single monthly payment. You will own the property once you have completed all payments in full
• Interest only Mortgage
  With interest only mortgage you pay the interest on the loan in a separate payment. The loan is secured on some form of pension or endowment investment plan. With an interest only mortgage there are no guarantees that you will be able to fully pay off the loan at the end of the term agreement.

Interest rates determine the amount of your monthly repayments and like mortgages in general there are various interest rate deals available. What type of interest rate you choose will depend on your lender and your credit history. There are 3 main type of interest rates fixed, variable and capped:

• Fixed Interest Rates
  With a fixed interest rate your payments will not change during the duration of the fixed period on your mortgage. This is great if the UK experiences a high interest rise, however if the interest rates are low, yours wont be, yours will be the same as allways. Fixed rates are good for first time buyers as you know exactly what you are paying for the fixed period.
• Variable Interest Rates
  Variable interest rates are fixed by the Bank of England each month. This means the amount you change can change from month to month. If the rate falls so will the amount you pay, but if it increases so will you payment too.
• Capped Interest Rates
  Capped interest rates are a compromise between a variable and a fixed rate. They set a limit on the amount of interest you will pay over time. These payments can be flexible like with bank rates however they will not go above a certain rate regardless of what the standard is.

So which of these mortgages are the best? Well with a variable rate mortgage there is always the worry that the basic interest rate will increase which will mean your mortgage repayments could increase extensively. However they could drop which means you save money. You will probably find yourself reading the finance pages of newspapers and watching the news each month waiting to hear an announcement on the base interest rate.

If this sounds like a nightmare then you are probably better of going with a fixed rate mortgage so you know exactly what you paying each month. These type of mortgages are very popular and have seen a significant increase in recent months. With the recent economic uncertainly those with fixed rate mortgages are enjoying a relatively stress free repayment period.

If you would like advice on mortgages and the best one to go for contact ARCH credit Services today and speak to a financial expert.

Some usefull articles are listed below:

Repayment mortgages vs. interest only mortgages
Best interest rate mortgages
Best 100 percent mortgages
What to look for in the best UK mortgages