When buying a home in the United Kingdom, most people choose between two main mortgages. There are other choices, but for most people, either a fixed-rate mortgage or an adjustable-rate mortgage is best.
Fixed-rate mortgages are the easiest to understand and what most people think of as the traditional way to buy a home. This means that the mortgage company gives you the money you need to buy your home and then figures out, based on their interest rate, how much interest you will have to pay over the time you have the mortgage. Most of the time, this is 15 or 30 years. Interest is added to the amount borrowed, and the monthly payments are just the total amount divided by the number of months it will take to pay off the mortgage. This makes sure that the monthly payment won't change as long as the mortgage is in effect.
The mortgage with an adjustable rate is a little different. Changes in the interest rate in the country affect how much interest you have to pay on the money you borrow. A teaser rate of interest is often given for the first year of a mortgage. This is usually a little bit lower than the interest rate on the market. After this point, the interest rate goes back to what is normal for the time. But there is a limit beyond which the interest can't go any higher. Usually, this is five points higher than your teaser rate, so if your teaser rate was 4%, your cap would be 9%. If you are thinking about getting an adjustable-rate mortgage, the most important thing to remember is that you may have to pay the capped level of interest for the life of the loan. That's the worst-case scenario, but you should still figure out if you can pay this much each month just in case you have to in the future.
