Choosing the right mortgage, whether it’s your first home or the next rung on the property ladder, one of the most important things youβll need to consider is the type of mortgage thatβs right for you.Β When choosing the right mortgage, it can make a big difference to the repayments you make for years to come, so itβs important to understand the advantages and disadvantages of the various options.
When shopping for a mortgage, many of us may assume the best thing to do is call a list of lenders, ask them for their interest rates, compare the results and go with the cheapest option β but there are far more factors to consider.Β This is where working with an independent, whole of market mortgage broker can make a huge difference to you and your new mortgage.
Whether you are buying a new property or just remortgaging, itβs worth looking at the different types of mortgages available to you and learning how they work.
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FIXED RATE MORTGAGES
Fixed rate mortgages have set monthly repayments. Youβll have an agreementΒ with your lender to pay that exact amount each month for a number of years (usually between two and five years). At the end of this period, your mortgage will switch to the standard variable rate β something weβll cover later.
Advantages:
- You know exactly how much youβre expected to repay, with no surprises.
- If the Bank of England interest rate rises, youβre protected from increases.
Disadvantages:
- The interest rate your lender offers for a fixed rate mortgage is likely to be higher than the starting rate they offer for a variable rate mortgage.
- If the Bank of England interest rate falls, you wonβt benefit from a decrease.
- There can be expensive penalties if you want to get out of your mortgage before the end of the agreed period.
TRACKER MORTGAGES
Tracker mortgages have monthly repayments that rise and fall according to the fluctuations of the Bank of England base rate. Sometimes this continues for the full term of the mortgage, but more frequently, itβs for an introductory period, such as the first two years. After this, the mortgage will switch to the standard variable rate.
Advantages:
- In times of low interest rates, tracker mortgages have lower repayments than fixed rate mortgages.
- While your repayments will change, they will only rise if the Bank of England base rate rises (or, in the case of some rarer mortgages, a different rate called the Libor rate). You donβt need to worry about rises for any other reason.
Disadvantages:
- Itβs impossible to know at the start of your mortgage how much your repayments might rise or fall by in future. You can get stuck with high repayments.
- If you need to get out of the mortgage early, you might have to pay an expensive penalty.
VARIABLE RATE MORTGAGES
Standard variable rate (SVR) mortgages are repaid at a rate set by the lender, which goes up and down as they decide. It tends to move in relation to the Bank of England base rate but β unlike a tracker mortgage β the two arenβt directly linked.
Advantages:
- When the standard variable rate goes down, so will your repayments.
- You can usually get out of an SVR mortgage at any time by fully repaying your debt. So, if the rate goes up and you canβt afford the repayments, you can look at remortgaging.
Disadvantages:
- Even if Bank of England interest rates fall, thereβs no guarantee that your mortgage repayments will go down.
- Frequent, unpredictable changes to your mortgage repayments can make it difficult for you to plan your household spending and live within your means.
CHOOSING A FIXED, TRACKER OR VARIABLE RATE MORTGAGE
The best type of mortgage for you will depend on your personal and financial situation.
Fixed rate mortgages are most suitable for people who would struggle to make repayments if these were suddenly to rise. Theyβre less suitable for people who plan to move in the near future.
Tracker mortgages are suitable for people who can afford to take a risk that their mortgage repayments will rise, for the chance that theyβll fall. Theyβre less suitable for people who plan to sell before the end of the tracker period.
SVR mortgages may appear to offer a better rate than other mortgage types but can be more expensive over the full term. If you originally chose a fixed rate or tracker mortgage which has now switched to the SVR, you might want to consider remortgaging. However, think carefully about how long you plan to stay in your property before committing to a new fixed term.
When you are new to this (and even when you have had a couple of mortgages) choosing which mortgage is right for you and your family, can be confusing.Β If you would like help in choosing the most suitable mortgage, or would like to find out more about mortgages we offer a no broker fee service.
At Yes Mortgage Services, we offer a comprehensive range of products from across the market.
Irrespective of whether you are looking to buy a new home, re-mortgage an existing property, or looking to protect your family from the unpredictability that life throws at it or protect your income if you are unable to work due to accident or ill health.
Yes Mortgage Services are committed to offering you the highest possible standards of service. We can undertake the whole process from answering the initial questions through to handling multiple product applications. Ensuring that everyone gets treated with the same urgency and maintaining your best interests are our main goals irrespective of the value of the mortgage.
We recognise that both we and our customers have everything to gain if we look after your best interests and treat you fairly in all aspect of our dealings with you.
