Mortgage minefield

Categories: Buying Property

With literally thousands of different ones to choose from, you might be forgiven for thinking that when it comes to choosing a mortgage, the decision is something of a minefield.

agentright articles - mortgage minefieldIt’s important to get it right, of course, since you’ll be wanting to sort through all the different mortgage types to find the one that not only best suits your particular needs and circumstances but is also the financially most attractive (i.e. cheapest). A mortgage can also last for a very long time and, whilst it is certainly not impossible to switch from one type to another or from lender to another, changing can sometimes prove expensive.

So, what help is available in choosing the right mortgage?

Rather than having to hand-pick your way individually through the thousands of potential offerings, for example, you might choose to use one of the many online mortgage comparison sites.

Type of buyer

Typically, these are likely to help you home in on the best mortgage for you by identifying the kind of borrower you may be. Thus, mortgages might be sorted according to whether you are a first-time buyer or an existing homeowner looking to remortgage (in other words, swap your current mortgage for a new one, either because you are moving house or because you want to find a better deal). Similarly, some kinds of mortgage might suit the self-employed – who may have a fluctuating or variable income – better than those employed on a regular income. Alternatively, you might be approaching the housing market as an existing or prospective landlord, looking for a suitable buy-to-let mortgage.

Type of mortgage

With the range of different types of mortgage growing ever longer, it would be difficult to list every kind of mortgage here. However, if you are broadly familiar with some of the more common basic types, you might want to narrow your search according to whether you are interested in a:

Repayment mortgage – this is the classic form of borrowing for home purchase and has been around the longest. You pay back both an element of the principal sum borrowed and the interest on your borrowing with each monthly instalment until the whole of the mortgage has been repaid. Just as the outstanding capital balance reduces over the years, so, too, does the amount of interest you are repaying;

Interest-only mortgage – just as the name suggests, this is a mortgage for which you pay only the monthly interest on your borrowing and none of the capital. As a much cheaper mortgage option, therefore, you might be tempted to choose this type of mortgage if you are pressed for funds. The problem, however, is that the entire capital borrowing remains your debt throughout the life of the mortgage, at the end of which it has to be repaid;

Tracker mortgage – this is so called because the interest rate attached to your borrowing tracks the Bank of England’s base lending rate. If the rate goes up, your mortgage repayments will rise – if it falls, the monthly cost of your mortgage will fall also. This is a particular variety of variable rate mortgage in other words

Discounted variable rate mortgage – typically designed to attract new borrowers, this is a mortgage offered by those lenders prepared to offer mortgage at a reduced or discounted rate of interest for an initial number of years. After this period, however, the rate you pay usually reverts to the lenders normal rate of interest, which is generally its standard variable rate.

Remember, however, that these are just a few of the more common basic types of mortgage – there are countless variations and subtle differences on many of the other types of mortgage widely available.

For more information on mortgages we recommend you visit moneysavingexpert.com for much more information.

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