Choosing the right mortgage loan is almost as important as selecting the right property.
Mortgage repayments are likely to be one of your largest monthly financial outgoings. There are hundreds of mortgage products available and choosing the right one can be a complicated process. A good mortgage broker will not just focus on the interest rate and fees of each product: consideration will be given to what type of mortgage you want.
Generally, there are two main types of mortgage products:
Fixed Rate
The mortgage interest will stay the same for a number of years e.g. two years or five years.
Variable Rate
The mortgage interest rate may change over time.
Fixed Rate
The mortgage interest rate will stay the same throughout the period of the fix, whatever happens to interest rates.
Advantages
Monthly payments will stay the same and may afford you peace of mind and help you to budget.
Disadvantages
If interest rates fall, you won’t benefit and an early repayment charge may apply if the borrowing is paid off during the fixed rate period.
Variable rate mortgages (four main types)
The interest rate can alter at any time and there are different types of variable rate products. A good independent mortgage adviser will consider your options carefully and ensure that you secure the best deal for your circumstances.
1
Standard variable rate (SVR)
SVR varies from lender to lender and each one will set its own rate. Advantages: You can overpay or repay the borrowing at any time. Disadvantages: The lender can change the mortgage interest rate at any time.
3
Tracker Mortgages
These are linked to another interest rate e.g. a lender’s base rate or the Bank of England base rate or LIBOR. Such mortgages are charged at a set margin above the interest rate to which it is linked. Advantages: If the interest being tracked falls, the monthly mortgage repayments will also fall. Disadvantages: If the interest being tracked rises, the monthly mortgage repayments will also rise. Also there may be an early repayment charge during the lifetime of the tracker period.
2
Discount mortgages
A lender may offer a discount from its SVR for a period e.g. two or three years. Advantages: The interest rate at outset is cheaper than an SVR deal, meaning lower monthly repayments for a period, and the lender may reduce its SVR, meaning monthly repayments will reduce further. Disadvantages: The lender can change the SVR at any time and monthly repayments may increase. There may be an early repayment charge if the borrowing is repaid before the end of the discount period
4
Offset Mortgages
An Offset mortgage is a flexible mortgage, linking current and savings accounts to the mortgage borrowing. Advantages: It can help you pay off your mortgage earlier and/or you will pay less interest on your mortgage borrowing as a result of the offset balance. Disadvantages: Offset mortgages are often available at higher interest rates than base rate tracker deals or fixed rate deals and the mortgage interest rate could rise. Furthermore, you need a significant level of linked savings to make an offset mortgage worthwhile.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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