There are many different mortgages out there, at last count there were circa 2000 products on the market from UK banks, building societies and other financial organisations.  With this many around it can be hard to choose which is best for you.

To start you need to have an understanding of the different types of mortgage available.  It is important to remember though, depending on your particular financial status you may be restricted on what products are available to you from lenders.  Once you have chosen your type of mortgage you can look at the different products available.

Repayment.  This is the traditional type of mortgage and the only type that guarantees you will own your home (assuming you keep up with the repayments).  The mortgage debt is split over a number years, usually 25.  Each month you make a payment you are paying off interest and capital.  In the first few years you are going to be primarily paying off the interest, but as the term shortens then more and more capital will be paid off.  The repayments continue until the debt is repaid.

Interest Only.  As the name suggests you are simply repaying the interest on the mortgage debt over the agreed term.  Then at the end of the term you will need to pay the capital back to the lender.  If you are unable to do this then the lender will probably reposses your property.  This is why it is important to have a method to pay of the capital at the end of the term and don’t just rely on winning the Lottery!  Methods that are available are, Endowment, ISA’s or Pension Plans.  Endowments are stock market based investments, which were very popular in the 1980’s and 1990’s when oversized mobiles, Shoulder pads, red trouser braces and whale tail Porsche 911’s were all the rage.  Then it went BANG!  Endowments are now considered very bad and like red trouser braces & shoulder pads should be avoided at all costs!  It is possible to cash in a pension plan to repay debt, but once again not a good idea.  Overall if this is the route you want to take then setup an ISA to repay the capital.  This is a tax free investment that is ideal for saving.  More info on ISA’s in our savings section.

So by now you should have chosen which type of mortgage you would like.  It now gets complicated with the numerous products available.  As previoulsy stated depending on your financial status not all of these products will be available to you.  In our next article we will look at some of the best products currently available and what a mortgage really costs…