House hunting can be overwhelming. And the first step — finding a mortgage — contributes greatly to that. What kind of mortgage you ultimately end up choosing will depend on a variety of factors, but they will all generally work the same way — you pay back the amount you borrowed, with interest. How mortgages differ depends on how the interest is calculated and the repayment terms.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Popular mortgage types
People search for mortgages at every stage of life. What you’ll need when you’re trying to get on the property ladder will be different from what you’ll need if you’re looking to downsize later on in life. Let’s take a look at the various types of mortgages available and what kind of borrower they’re suited for.
Fixed-rate mortgages
A fixed-rate mortgage has an interest rate that is set for a specific period of time, usually between two and five years. Even if interest rates rise (or fall) your monthly repayments will stay the same. This kind of mortgage gives borrowers peace of mind and a sense of stability, as they can incorporate the unchanging amount into their budget since they’ll know exactly how much they’ll need each month.
Something to keep in mind with these kinds of mortgages is that once the fixed rate period comes to an end, what usually happens is that the interest rate reverts to the lender’s standard variable rate (SVR), which is quite often a much higher rate.
Tracker mortgages
With a tracker mortgage, your rate is set at a certain percentage above the Bank of England base rate. Essentially, take the BoE base rate and add on your tracker rate, and that’s your actual interest rate. The advantage to tracker mortgages is that normally, their initial rate tends to be lower than a fixed-rate. Unfortunately, just as with fixed-rate mortgages, when the initial period ends, your rate reverts to your lender’s SVR.
Discount rate mortgages
During the initial period, your interest rate is discounted with this kind of mortgage. Once this ends, once again your rate will revert to the SVR.
Capped rate mortgages
Similar to a tracker mortgage, with a capped mortgage the interest rate is set a certain percentage above the base rate, but there is a cap on how high the interest rate can go despite how high the base rate climbs.
Offset mortgages
With an offset mortgage, your savings are offset against your mortgage balance, so the only interest you pay is based on the difference. For example, in your savings, you have £20,000 and your mortgage is £100,000, which means you would only pay interest on £80,000. These kinds of mortgages can help to reduce the amount of interest you pay over the life of your mortgage as well as clear your debt more quickly.
The best option for you
Whether you’re a first-time buyer, looking to upgrade, or even considering remortgaging, you’ll undoubtedly face an array of options. To help find the right mortgage product for you, contact the experts at Dental & Medical Financial Services today.