At first glance there seams to be a bewildering choice of different mortgage types and deal, with loads of different banks and building societies and other finance companies all offering different mortgage deals.
So before you looking at all the different mortgage offers you should acquaint yourself with the different mortgage types on offer and have a basic understanding of how they operate. Main mortgage options
The first choice you will need to make is how you choose to repay your mortgage, there are two basic options. A repayment mortgage or an interest only mortgage which should be linked to a suitable investment.
This is where the monthly payment you make to the lender pays the interest on the mortgage as well as paying some off the amount of capital you have borrowed. This type of mortgage gives you the security of knowing that at the end of the mortgage term you will have paid off the entire amount.
Interest only mortgage:
This is where you pay your mortgage lender the interest on the loan only, but do not pay anything of the sum borrowed. So at the end of the mortgage term you would still owe the original amount you borrowed. Therefore with this type of mortgage you should have an additional investment plan that will cover this payment. There are many options available such as Individual savings account (ISA) or endowment, which should pay off your mortgage at the end of the term.
Once you have decided on the type of mortgage you require you next need to look at the interest rate options that are available.
Standard variable rate:
This is the standard rate of interest that your chosen lender charges and can vary both up and down depending on market conditions and the Bank of England base rate.
The fixed rate mortgage as the name suggests offers a fixed rate of interest for a set period of time, which means that you know for the period of the fixed rate exactly how much you will be paying every month. This is good if you are on a tight budget as you will have the security that your mortgage payments will remain the same during this period. Fixed rate mortgages differ in length from one years to 10 years or more. One disadvantage of the fixed rate mortgage is that if interest rates were to fall during your fixed rate period you would still continue to pay at your fixed rate for the period of your fixed rate.
With a discount rate mortgage you get a discount off the lenders standard variable rate for an agreed period of time. If interest rates go up or down your payments will follow suit.
The capped rate mortgage offers the customer a guarantee that the mortgage rate will not go above a certain level (capped rate) for the agreed period of time. However if interest rates fall your payment should also fall.
This is not an interest rate option per say but is often combined with one of the options above. With this type of mortgage you will receive a cash back payment when you take out the mortgage. These types of deals are particularly popular with first time buyers who may be short of cash for such things as furniture. You should always be aware however that you do not get something for nothing, and there will oftern be cheaper deals out their without a cash back option.
This type of mortgage is design for people who may want to vary the amount they pay back on their mortgage to varying degrees over time depending on their circumstances. This type of mortgage is often popular with the self employed whose income can very considerably over time. You can take payment holidays and make overpayments. This type of mortgage is not usually recommended for first time buyers or people on tight budgets.
So which mortgage type do you go for?
This always depends on individual circumstances but one of the best methods is to consult with an independent financial advisor you will be able to look at the whole mortgage market to help you find the best deal to suit you.
We have helped thousands of UK people obtain advice on Remortgages.
We Believe the Best Advice is 'Independent' Advic