There are many important factors you must consider when choosing the right mortgage. There are also many types of mortgages available on the market, and it can be confusing to know which one is right for you.
We’ve outlined the basics below, but you should seek advice from a qualified mortgage adviser.
With this type of mortgage (also known as capital and interest) you repay part of the amount borrowed together with the interest being charged each month. In the earlier years, the majority of your monthly repayment is made up of interest, however towards the latter part of your mortgage term the situation is reversed with the majority of your monthly payment reducing the amount borrowed.
With this type of mortgage you are only paying interest each month. This means that although your payments will be lower, the amount you borrow will still be outstanding at the end of the mortgage term. You’ll need to make alternative arrangements to pay off the mortgage to avoid the property having to be sold, such as taking out an investment policy.
Take the rough with the smooth. With this type of rate your payments should rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount. You will almost certainly be paying a higher interest rate than the Bank of England base rate. Most borrowers are transferred to their lender’s standard variable rate once their initial incentive rate period comes to an end.
Fixed rates give you the security of knowing that your monthly payments are the same. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you’ll be paying each month even if interest rates change.
Your payments change when interest rates fall or rise. Tracker variable rates are usually linked to the Bank of England Bank Rate, which means they’ll change in line with changes to the base rate. Tracker variable rates usually offer an initial incentive, typically two or three years. For example, the interest rate payable may be set a small percentage above the rate being tracked for an incentive period. At the end of the incentive period the rate payable will continue to track the rate to which is linked but usually at a larger percentage above the rate being tracked.
Let’s talk mortgages can arrange for a qualified expert mortgage adviser to contact you to discuss your mortgage and protection requirements.