When it comes to getting a mortgage, it soon becomes apparent that it is by no means a simple prospect. Nowadays, there are so many different types of mortgages available that it can be overwhelming trying to find the right one to suit you.
So, before you start speaking to any financial professionals, here is a brief overview of the most common types available and how they work:
An interest-only mortgage only requires you pay the interest on the loan each month. This means much lower monthly payments but, at the end of the loan, you will be required to pay off the mortgage in full. This can be useful if you know where the money will be coming from or if the house has increased in value by the time it comes to pay it off.
Variable Rate Mortgage
A variable rate mortgage is one whereby the monthly payments can fluctuate, depending on the Bank of England’s base rate of interest. If interest rates are high and expected to fall, then this can be good as it means your payments will be lower; however, it works the opposite way as well.
Fixed Rate Mortgage
A fixed rate mortgage is when you lock in a fixed interest rate for a number of years. This means that, regardless of fluctuations in rates, your payments stay the same. Though you may miss out on potential savings, you have peace of mind over what you pay each month.
A tracker mortgage is where you pay a set interest rate that is a fixed amount above the base rate. As the base rate fluctuates, so will your tracker mortgage.
Capped Rate Mortgage
Capped rate mortgages are beneficial to those who believe interest rates are likely to go very high. You will set a cap on how high your repayment interest rate can go, regardless of how high the base rate goes. This allows you to get much of the benefit from a variable rate mortgage, but with added security.
Now that you have a basic overview of what each type of mortgage means, you should start to be able to get a feel for which one would suit your financial situation best. However, it is, of course, always prudent to speak to financial advisors who have years of experience and can help you understand the risks and rewards associated with each one, before committing to a decision.
Here at Burton & Fisher, we offer qualified mortgage advice in Lancaster, and are always looking to help clients get on the property ladder or take another step up the rung. So, for further assistance, contact us today.