Mortgage basics:fees, jargon and rates explained (The Telegraph.co.uk)

In total, there is a little more than £1.3 trillion of outstanding mortgage debt in the UK, according to the Bank of England.

That equates to more than £20,000 for every person in the country. But for many, the intricacies of mortgages remain a challenge, and they are frequently misunderstood. 

Here, Telegraph Money explains everything you need to know about mortgages - from the different types available to the associated fees you may have to pay.

Fixed and tracker mortgages

There are two main types of residential mortgage: fixed rate and tracker.

A fixed rate mortgage has the rate set for a given time period, regardless of what happens to wider interest rates. The fixes typically range from two years to 10 years, although there are some lifetime mortgages available.

As a rule, the longer you choose to fix for, the higher the interest rate. 

You are effectively paying for the security of knowing exactly what your payments will be.

If rates went down across the board during your fixed term, you would miss out on the potential to access a lower rate, whereas if rates went up you would be quids in.

Tracker mortgages follow the movements in another rate, normally the Bank of England’s central rate. The mortgage is typically set at a fixed margin above Bank Rate, fluctuating as the rate does.

In recent years, those on tracker mortgages have benefited significantly from continued low rates. 

From March 2009 to August this year, Bank Rate was set at 0.5pc, the longest period of stability in its history. The rate has now dropped to 0.25pc, and further movements over the coming years should be expected, which will affect tracker mortgage rates.

See here for Telegraph Money's regularly updated list of the cheapest fixed-rate mortgage deals. 

Standard variable rate

Homebuyers should also be aware of the standard variable rate or SVR.  

This is the rate a fixed mortgage moves onto after the set term is up, and is normally substantially higher.

Those on fixed rate mortgages should aim to move between fixed rate deals, as SVR rates are not designed to be sustainable.

Many borrowers end up on the standard variable rate for years, often because they can't access a new deal.

Loan-to-value

Normally written as LTV, this is the maximum percentage of a property that can be borrowed on a given mortgage deal.

For instance, a mortgage with a maximum LTV of 80pc would require at least a 20pc deposit.

The lowest interest rates are reserved for lower LTV amounts, so are only accessible to those with large deposits or who are re-mortgaging with a substantial existing stake in their property.

Typically, the maximum LTV available is 95pc. There are some 100pc and above deals available, but these come at very high rates.

There are exceptions. Some schemes, such as Barclays’ Family Springboard mortgage, enable buyers to purchase a property without any deposit at a reasonable rate. Instead, a family member provides 10pc of the property’s price as security, which they get back with interest if repayments are kept up.

A comparatively small amount is lent at high LTV levels. According to the Bank of England, from the second quarter of 2012 to the second quarter of 2016, only 2.8pc of mortgage lending was at an LTV of 90pc to 95pc.

Mortgage term

The mortgage term is the total length of time over which you agree to repay the mortgage in full. Along with the interest rate, it is used to calculate your monthly payments. 

Traditionally mortgage terms have been 25 years, but there has been a rise in 30 and 35 year mortgages as people struggle to get onto the housing ladder.

In some cases, you can apply to change the term during the mortgage, either to repay sooner or to lengthen the repayment period to alleviate the pressure of payments

Read more at http://www.telegraph.co.uk/personal-banking/mortgages/mortgage-basics-fees-jargon-and-rates-explained/