In today’s market, there are many types of mortgage options and knowing which one is suitable for you is vital if you want to get the right deal. Even though every mortgage tends to function in a similar way, things such as repayment methods, interest rates, and fees can all be different between products. Finding the right deal isn’t simply a case of choosing the lowest rate, but more about seeking the right deal to suit your own financial circumstances. This guide explains the different types of mortgage available in today’s market. We will look at the differences between interest-only and repayment mortgages, which are the two main types you will need to know about. And then covers the other types of mortgage products available.
Repayment mortgage
Repayment mortgage options lets you pay some of the capital amount you have borrowed, as well as some of the interest. The aim is to pay back the original loan amount plus interest over the term agreed when you took out the mortgage. This lets you build up equity over time and eventually own the home outright. Almost every mortgage product works on the basis of repayment. The only exception to this general rule is an interest-only mortgage.
Interest-only mortgage options
Interest only mortgages require you to pay the interest each month on the amount borrowed, but not any repayments towards the capital sum. Instead, the loan amount is paid back at the end of the mortgage term. If you have this kind of mortgage, you will need to ensure you have accumulated enough funds to repay the capital borrowed at the end of the mortgage period. If you don’t have the funds, you may have to sell the property to cover the sum owed. Because interest is only paid back on the whole loan, as opposed to a decreasing amount, an interest-only mortgage will cost more in the long run.
Fixed-rate mortgage options
As you might suppose, with fixed-rate mortgage options, the interest rate is fixed for a specified period and will not be affected by fluctuations in the market or Bank of England base rate rises. If you take out a fixed-rate mortgage, you will be locked into the introductory rate for a set amount of time, and if you leave before it ends, you will be subject to exit fees.
Generally, fixed-rate periods are the first two, three or five years of the term. During this time, you will know exactly how much you will pay each month, and this won’t change until the fixed term ends, arguably making it easier to budget. The certainty of fixed-rate mortgages is particularly appealing to first-time buyers who are looking to budget for the first few years, or homeowners who want to be certain of the amount they will pay each month.
A disadvantage of this type of mortgage is that once you are locked in, it can be difficult to switch because of hefty penalties that most lenders attach to their mortgage products. Additionally, you won’t be able to take advantage of any falls in interest rates during the fixed term, although you will be protected from increases in interest rates.
At the end of the fixed-rate term, you will be put onto your lender’s standard variable rate, which, in most cases, is higher. At this point, many people decide to remortgage and switch to a better deal.
Variable rate mortgage options
With variable rate mortgage options, the interest rate can shift at any time to a lower or higher amount. There is no set fixed term and so anyone on this type of mortgage is not locked in, although the amount paid each month can fluctuate. This type of mortgage product is affected by the Bank of England’s base interest rate, as well as other factors. There is more than one type of variable rate mortgage. For each kind, the interest rate paid is calculated slightly differently.
Standard variable rate mortgage (SVR)
An SVR mortgage has an interest rate that is set by the mortgage provider and is not directly linked to the Bank of England, although in most cases, it is the principal influence as to whether it increases or decreases. A lender can either increase or decrease the rate you are paying on a monthly basis, so you may end up paying more one month, and less the next depending on the decision they make. This can make it difficult to budget. But on the flip side, an SVR can give you the freedom to overpay or leave the mortgage for another product without fear of being hit with exorbitant fees.
SVR is also the rate that lenders will transfer those coming off fixed-rate deals, which means paying a higher interest rate if they don’t remortgage.
Read more at: https://onlineconveyancingsolicitors.co.uk/mortgage-options/
Due to the real estate slump caused by the pandemic situation, it's the right time to think about investing in the London property market, especially for aspiring homeowners.
The housing market is definitely favouring buyers now.
But don’t get swayed, follow the top tips mentioned below:Instructing Property Solicitors in LondonFiguring out a reliable property solicitor in London takes a majority of the burden off your shoulders.
His/her role is paramount in the conveyancing process.
The solicitor would be your best friend till the transaction is complete.
Being one of the top law firms in London, at Legend Solicitors, you get the right experienced conveyancing solicitor with years of experience to cater your unique needs and due diligence.Choosing The Apt Real Estate AgentThe right experienced real estate agent helps you locate hidden gems in London.
