Despite the complexities of mortgages, the options available are quite self explanatory. Within each mortgage product, you will discover there are several different kinds of mortgages to choose from. The best mortgage deal for you will depend entirely on your individual circumstance. Whether you’d prefer monthly repayments that stay the same each month or variable rates, there is an option to suit. Here are the main types of mortgage options available when considering moving home mortgages:
Tracker mortgages track the Bank of England base rate, apply it, and add the additional set percentage rate from the lender. For example, if you select a mortgage deal with a 2.2% set percentage rate and the Bank of England’s base rate is 0.4%, your payable mortgage deal would be 2.6%. However, if the base rate dropped to 0.2%, you would benefit from the reduced rate. Although the same applies if the base rate rises, making it more costly. So, you can choose a tracker mortgage, as long as you can afford to accept that you will pay more when interest rates are high, so that you can benefit when they are low. Tracker mortgages aren’t suited to those who work on a tight budget or those who would be unhappy if rates were to increase.
Fixed rate mortgages suit those who like to be disciplined with their monthly budgets, knowing exactly what’s coming in and going out, even if it means missing out on long periods of reduced interest rates. Essentially, a fixed rate mortgage means that your monthly payments are the same amount each month, regardless of what’s happening to the Bank of England base rate or the property market. This can give you peace of mind. When arranging your mortgage deal, you agree a set rate for a certain period. Typically, this fixed usually rate ranges from two to five years. Although, it is possible to fix it for longer, should you want to, however, it’s advisable to asses the market every so often to see if you can secure a better mortgage deal.
There are no real surprises as to how discount mortgages work. They are often used as an incentive to persuade you to make an instant saving. Discounted mortgages offer an upfront discount off the lender’s Standard Variable Rate (SVR). This is usually for the first few years of your mortgage deal, before it switched back to the SVR. It’s worth noting that your lender’s SVR is subject to change, meaning your payments will increase or decrease throughout the term of your mortgage deal.
One thing to remember about a capped rate mortgage is that they are on a variable rate, so your monthly repayments can fluctuate. However, the idea is that the rate can be capped so that it will never go above a certain limit. You may choose this mortgage option, if you are under the impression that mortgage rates will fall, so that you can capitalise on lower rates, but at the same time would prefer to have the added protection of a cap, in-case they increase. This option can be of great benefits, if you’ve got the finances in place. The idea behind an offset mortgage is to use your savings to reduce the amount of interest you pay on your mortgage overall. Imagine you have a £200,000 mortgage and £25,000 in additional savings. You can offset these savings against your mortgage so that you only pay interest on £175,000 of your mortgage deal. Don’t worry though, these savings are still accessible whenever you choose. And that’s why rates on offset mortgages are slightly higher than standard mortgages.
So, when it comes to moving home, as you can see, there’s a lot more than just making sure your boxes are safely packed and secured! Choosing the right mortgage deal is essential. Understandably, it can be overwhelming. Luckily, MortgageKey are perfectly placed to advise you on all of the above, if you’re looking to move home and are not sure which option suits you the most. Speak to an adviser today!
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