Many people dream of owning their own home, with the current level of price houses this may seem like an impossibility, but mortgage lenders have responded to the higher levels and now offer mortgages that have longer repayment terms and so can make the dream of house ownership a reality, even if you have a bad credit history.

A mortgage will most likely be the biggest debt that you will face, one that is a necessity to secure a property for most people. Mortgages are a type of loan, one that is secured against the house being bought, this means that if a borrower is unable to meet the repayments then the lender will be able to force the sale of the property in order to get back the money that they are owed. Although this may seem worrying – you could stand to loose your house in the worst case – it is for this reason that financing property buying is possible, without this security in place it would be impossible to obtain such large loans.

There are a wide variety of mortgages available, and deciding on which one to go for can be difficult and confusing – the main points of the most popular mortgages are given below to help you get a better understanding of the options available to you.

Fixed rate mortgage

A fixed rate mortgage has an interest rate that is agreed before the mortgage is taken out that remains the same for the life of the mortgage, hence the name fixed rate. This approach gives stability as the monthly repayments will always be the same no matter what happens to the Bank of England base rate, and protects the borrower from rises in this base interest rate. By the same token, if the interest rates fall the borrower will not see any benefit and so a fixed rate mortgage is a good option for those who want to be sure of their finances and are worried that the interest rates might rise and cause them difficulties in meeting the payments.

Variable rate mortgage

As the name suggests, the interest rates on these types of mortgage can vary, and do so depending on the Bank of England base rate. With this type of mortgage the borrower is exposed to the changes in the base rate, which is a good thing when the interest rates fall, but will add to your costs if the rates rise. If you believe that interest rates will fall or remain low and are not risk adverse, then this could be a good type of mortgage to opt for.

Capped rate mortgage

This type of mortgage aims to provide the best aspects of the above two – with the rate being dependant on the base rate and so saving you money when interest rates are cut, but have an upper limit to prevent your costs increasing too much should interest rates rise. The interest rate on a capped mortgage will be higher than for a variable rate when the base rate is low, but the security of knowing there is an upper limit to what you will be paying makes this an attractive option.