Making the right choice for your finances and mortgage payments.
There are a lot of words used that are idiosyncratic for the housing and mortgage industry. One of those is the “term” of your mortgage and the “product”. So I wanted to take some time to explain these and what they mean and then potentially the choice you might have in regards to them. Bear in mind there are lots and lots of different mortgages and products so what yours is might be different. So make sure you speak to some one you trust to explain it fully to you. I will be speaking generally about elements and not into specifics apart from in examples.
The term of your mortgage is the length that it lasts. So a mortgage for 25 years will mean that you will pay an amount every month for 25 years. After the 25 years generally the amount you loaned will be paid back and you own the house completely. This is only if you are on a capital and repayment mortgage. Not interest only.
The product is the “deal” you have made with your lender in regards to the conditions that you repay your mortgage. For example, if you are on a fixed rate mortgage for 4 years on a 25 year term. That will mean for 4 years you will pay the same amount for your mortgage. After that 4 years has finished, the product of your mortgage has ended and generally you will go on a variable rate of interest (generally speaking). And a variable rate of interest means the interest rate of your mortgage is set by the lender. This USUALLY follows the rate set by the Bank of England. So your mortgage payments may go up or they may go down.
So what can you do about this?
Often products have a condition where you can re-mortgage without penalty*, usually at the end of the “deal”, this means you can then go and get another product that suits your current situation better. This generally doesn’t affect the “term” of your mortgage. Unless you decide to lend more but that is for a different blog.
Even if you are happy to go onto standard variable rate, it could be considered careless to not at least speak to someone when you are nearing the end of the product in regards to what will happen. Even at the least go speak to your lender then you will know what your re payments are going to be. You do not want to be surprised with a higher mortgage repayment each month if budgets are tight!
*Most products have a cost to leaving early to re-mortgage or moving house to get another mortgage. So make sure that if you do this you understand what this penalty maybe if at all.
(Your house maybe repossessed if you cannot keep up repayments on your mortgage)