Whether you are looking for a bigger home, downsizing your house or taking those first steps onto the property ladder, choosing the right mortgage can be a tricky process.
With so many products available, the choice can be baffling. We often recommend that our customers speak to a broker to get the best deal for their individual situation (take a look at our Advoco Financial guest blog for more information about the benefits of using brokers when choosing a mortgage). Sometimes it’s not just the cheapest rate you need to focus on, how the mortgage product fits with your financial situation and plans for the future.
To give you a bit more information, we’ve put together an overview of various mortgage products and how they work.
Fixed rate mortgage
With a fixed rate mortgage, the interest rate remains the same for a certain amount of time, typically from one to five years. This gives you the financial security of knowing your mortgage payments will be the same for a number of years. However it also locks you into the mortgage with the provider, with hefty penalties if you decide to change or leave the mortgage before that period ends.
A tracker mortgage links the amount of interest you pay with the Bank of England base rate. This is a very attractive option at the moment as the base rate is so low, but if (and when) interest rates rise, your mortgage payments will too.
Tracker mortgages vary, from fixed terms to more flexible ones over the lifetime of your mortgage.
Similar to a tracker mortgage, but in this case the interest rate is linked to the lender’s own Standard Variable Rate (SVR). This is set by the lender themselves, separate from the Bank of England base rate, so again your payments could rise and fall dependent on the rate set.
If you have a lot of savings, it may be more beneficial to link your mortgage to savings in an offset mortgage. With this product, the amount you hold in savings is offset against the interest you pay on your mortgage. Although you pay the same amount for your mortgage repayment, you are actually paying more as you are charged less for interest. Offset mortgages can also be linked to your current account, and can be variable or fixed rate.
If you are thinking of buying a property, whether it is your dream home or an investment, our skilled and knowledgeable team can help you through the process. Contact us today to find out more.