There is so much choice when it comes to picking a mortgage, that it can seem totally baffling. Not only do you have to work out which mortgage will be the cheapest for you, which means looking at interest rates and fees, but there are also different types of product available.
Fixed rate mortgage
The interest rate remains the same throughout the period of the deal – typically one to five years, though it is possible to get ten year fixed rates. If you opt for a fixed-rate, you’ll have the security of knowing exactly how much your mortgage will cost you for a set period of time.
The interest rate on a tracker mortgage is linked to the Bank of England base rate. So if the base rate changes, your mortgage rate will change.
The base rate is currently 0.50%, so if you took a tracker mortgage with a rate that is 2% above the base rate you’ll be paying an interest rate of 2.50% . If the Bank of England put the base rate up to 1%, your mortgage rate would increase to 3.00%. This would add about £25 a month to the repayments on a £100,000 mortgage.
As with fixed rate mortgages, trackers are available over different terms: most commonly two or five years. With these deals, you’ll be charged a penalty if you want to get out of the mortgage during the term.
You can also get lifetime, or term, trackers and these are often completely penalty free so they are very flexible and can be a great option if you don’t want to be tied into your mortgage.
Trackers aren’t the only type of variable mortgage. Discounts are another. However, unlike trackers the interest rate isn’t linked to the Bank of England base rate. Instead, it’s linked to the lender’s standard variable rate (SVR) and this is a significant difference because lenders can change their SVR even if there has been no change in the base rate.
A number of lenders have done this over the past year or so, and have increased their SVRs. This means their customers with discount mortgages have seen their repayments go up even though the Bank of England base rate hasn’t changed since March 2009.
Discount mortgages are available over different terms – typically one to five years – and as with trackers and fixed rate deals you will probably be charged a penalty if you want to get out of the deal during the term.
This is a more complicated mortgage as it links your savings to your mortgage debt.
Rather than earning interest on your savings, that money is set against your mortgage so you pay less interest on that debt. For example, say you have a £100,000 mortgage and £20,000 in savings, you would only be charged interest on £80,000 of the mortgage. However, your monthly mortgage repayments will have been calculated as if the debt was £100,000. This means you end up paying more than you need off your mortgage each month. As a result you clear your mortgage off more quickly and save yourself thousands of pounds in interest.
Some lenders give the option of reducing the monthly payments so that they are calculated on the mortgage amount once your savings are factored in. So with the example above, your repayments would be based on a £80,000 mortgage. This can be good if you want to save money now, but it won’t help if you are considering an offset to pay your mortgage off more quickly.
If you are considering an offset, you will have the choice of fixed or variable rate products, so consider the advantages and disadvantages of those as discussed above. Also, some offset providers will let you link your current account to your mortgage as well as your savings.
Over 60% of people who currently have a mortgage, have had it for a long time, and without ever thinking about changing it they continuously keep making payments towards them. People do not know that there are better deals available in the market, banks prefer not to tell their customers as they are profiting from them.
Buy to let mortgages
These are tailored for investment properties only and usually there is a maximum Loan to Value of 85% of the property value. The would-be Landlord must be able to demonstrate that the rental income will exceed mortgage repayments by a certain percentage.
The Lender will also wish to be satisfied that the property to be purchased is a good long term investment.
Ensuring that you have the best Buy to Let mortgage deal can be very difficult for an individual. This means that it has now become more important than ever to have a professional search the entire market for you to ensure you are getting the best investment deal in order to profit from your investment.
We at HS Home Search have a list of different mortgage advisers who can offer you advice on various types of UK mortgages. Whether you’re uncertain about the options available to you, or you know exactly the type of product you are looking for but just want the best rates, why not challenge us to find the best option for your circumstances?
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.