When buying a house, the owner will usually need to obtain a mortgage to help with the payment. Although most homeowners have a mortgage, each person can opt for a very different plan depending on what suits them best. For many buyers, the choice will be between a fixed rate mortgage or some form of variable mortgage. Each mortgage will suit different people better, but what are they and who are they best for?
First, the homeowner needs to decide if they want to follow a fixed rate mortgage or choose a variable option.
Fixed rate mortgage
Fixed rate mortgages have the same interest rate for the entire repayment, or an agreed period, which means the monthly payment amount will not change.
This type of mortgage is more stable than a variable mortgage, but the homeowner may be forced to pay a higher rate if general mortgage rates drop.
According to the experts at L&C Mortgages, this can be good for buyers who budget carefully and want to know exactly how much they will pay each year.
A variable rate mortgage has an interest rate that will change from time to time as mortgage rates change and there are different types.
Opting for one of these can be advantageous for buyers who think mortgage rates will drop.
Buyers can choose from a wide range of mortgages on offer and the most popular are follow-up mortgages and discount mortgages, according to which.co.uk.
With the tracker mortgage, the owner will choose an interest rate percentage that they will always pay as the base rate.
On top of that, they will follow the Bank of England’s base rate and pay it on top of their standard payment, regardless if that changes.
It’s also a good option for those who think rates will go down, but need to be able to afford it if rates go up.
For those hoping to take out a discount mortgage, they pay the lender’s standard rate, which will rarely change, and apply a fixed amount discount.
It’s usually only for a fixed period and can help buyers who want a low interest rate.
In addition to these popular mortgages, there are other variations available and other lenders may have their own offers.
Before choosing a mortgage, it is important for the homeowner to understand what it means and which one is best for them. It is therefore necessary to seek financial advice from an expert.
For those who buy a property with the hope of renting it out rather than living in it, they can opt for a rental mortgage.
Buy-to-let mortgages are usually offered on an interest-only basis, which means that the payments made will only cover the interest on the loan.
This is different from most residential mortgages, as these will cover both the principal, or amount borrowed, and the interest, and will therefore gradually pay off the price of the property.
According to Martin Lewis Money Saving Expert, mortgages could be subject to change due to Brexit.
On The Martin Lewis Money Show: Live, Martin explained he couldn’t be sure what would happen if the UK left the EU.