With thousands of different types of mortgages available on the current market, making a decision on the best one for you can be overwhelming. Before making these choices you first need to know what mortgage will work best for you and your circumstances. So, what mortgage options are out there? Today we will be looking at a few of the different choices on the market and what they all mean to you, the customer.
The first type of mortgage we will look at is a “fixed rate repayment mortgage”. This is the most popular option on the market currently, as it allows predictable repayments over a set term (between 15 and 30 years).These are designed so you repay both the interest and the equity of your mortgage every month and ensure that by then end of the term you’ve agreed, you will have repaid the entirety of your debt. Generally, with shorter loan terms brings a lower interest rate, as lenders take a decreased risk. However, the disadvantage to a fixed rate mortgage is that this interest rate may be higher than either an adjustable-rate loan or interest only loan, this means you may not be getting the best deal if the interest rates were to drop. You may also be paying back your loan slower than you would prefer, unlike in an adjustable rate loan where you are able to change the amount of interest you pay regularly.
This brings us to the second style of mortgage we will look at, an adjustable rate mortgage or ARM. These offer the user to adjust the interest rate on their mortgage, the specifics of this however are different offer to offer and we encourage you check the specifics of any options before jumping straight in. The benefits of this option, is that it allows you to make the most of low interest rates, and adjust your repayments to suit you perfectly. Be warned however, as a sudden rise in rates can result in unexpected high payments. For many, this risk often outweighs the benefits of this mortgage style, as it essentially allows lenders to charge however much they want too with little protection for the borrower.
Another option to consider is an offset mortgage. Available to borrowers with savings accounts held with the lender company, these mortgages knocks the savings amount held off the total debt they charge interest on. For example, if you have £10,000 in savings, and a mortgage of £200,000, you would only pay interest on £190,000. This type of mortgage allows you to reduce your interest rates significantly, depending on your current savings and gives you flexible control of repayments, allowing you to pay more when you can afford too, and pay back less when you need too. The downsides of this however means you won’t earn any interest on the savings account held with the lender during the term of the mortgage. They also generally tend to have a higher interest rate than the average currently on the market.
If this is your first time looking to get onto the property market, first time buyer mortgages are often recommended. These can be helpful as companies often run discounts, accommodate lower than average deposits and have smaller application charges. These come with their own limitations to consider however, namely being lenders regularly put restrictions on which properties are available to you based on price and location, so you won’t be purchasing an expensive house with a first time buyer mortgage.They also may have limited options within your loan, such as only offering 30 year fixed-rate, to encourage to stay in the property for a long period. These programs are also not designed for investors, so you will be expected to use the purchased property as your primary residence.
There are many more mortgage options to look into when seriously considering purchasing property, and although this list is a great start, we encourage you to do as much research as possible into all the options available to you, either yourself or through an experienced mortgage advisor.