Tuesday, 18 April 2017 10:18

Which type of Mortgage is right for you? Our essential guide

The broad range of mortgages share many different aspects and elements but there are also many different elements to the individual types of mortgage on offer. This is why if you are looking to buy property, it makes sense to know the different types of mortgage and you should work out which type of mortgage is right for you.

Fixed rate mortgages

The fixed rate mortgage, as the name suggests, is set for a chosen number of years. Fixed mortgages are usually set in place for two to three years but you can find fixed rate mortgages that last for five and ten years. This is the best type of mortgage to opt for if you have a set budget and cannot risk rising interest rates. With a fixed rate mortgage, you know exactly what you are paying, which allows you to plan ahead and set a budget.

There is a slight issue in that a fixed rate mortgage usually starts with a higher rate than standard variable rate (SVR) mortgages and of course, if the interest rate falls, you don’t get any benefit with a fixed rate mortgage.

Variable rate mortgages

You will find that every single mortgage lender provides their own SVR mortgage. While the base rate is set by the Bank of England, the SVR of a lender can move depending on the needs and decisions of the company. While it is common for these rates to follow the general movement of the base rate, it may be that the lender increases or lowers the rate above or below the base rate movement.

As a variable rate mortgage, you can benefit if the base rate falls or the lender decides to cut their rate but equally, you may have to pay more money each month if the rate rises. You must therefore be confident that you can afford to pay an increasing amount of money each month.

Tracker mortgage

While a tracker rate mortgage is a variable rate mortgage, there is a bit more certainty and confidence to this style of loan. This is because it will be stated what the tracker relationship to the Bank of England base rate is, and your interest rate will move in line with the base rate.

In an example, if the base rate of the Bank of England sat at 0.5% and the tracking rate of the lender was 1.5%, the mortgage rate would be 2%. If the base rate dipped to 0.25%, the mortgage rate would move to 1.75% and if the base rate rose to 0.75%, the mortgage rate would rise to 2.25%.

Again, if the base rate falls, there can be a benefit in having this style of mortgage but if the base rate rises, you will have to pay more money each month for your mortgage payments.

Discount rate mortgage

While this mortgage is similar to the SVR provided by a lender, as the name suggests, there is an extra discount placed on top of the mortgage. The same caveats about the SVR apply here but there is an additional saving to be found with this style of mortgage, making it a good choice for many mortgage hunters.

Capped rate mortgage

Another mortgage that is similar to a SVR is the capped rate mortgage but the difference here is that there is a limit set on how high the interest rate can go. This isn’t a commonly offered mortgage but if you can find it, it will provide a degree of confidence about how much money you have to pay every month.

Other mortgages on offer, although not too commonly, include:

  • 95% mortgages
  • Buy to let mortgages
  • Cashback mortgages
  • First time buyer mortgages
  • Flexible mortgages
  • Interest only mortgage
  • Offset mortgages

Knowing the benefits and drawbacks of these mortgage types will help you find the mortgage that is best for your needs.

Why not look at a few mortgage products on the market now. Simply click here: www.conranfinancial.co.uk/mortgage-search

If you want to know why we are so great then have a look at what our customers say on Feefo by clicking here.


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