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Compare Mortgages with Money Pug
What questions should I ask when choosing a mortgage?
How do mortgage interest rates work?
What mortgage types are available?
Variable Rate Mortgages
The most common type of mortgage on the market is the standard variable rate. Most banks and other lenders offer at least one mortgage of this type. With this type of mortgage, you will pay the standard rate of interest charged by the lender, which is pegged to the Bank of England’s base rate, yet will be set by the individual banks or mortgage providers and can change even when the base rate does not. With a variable rate mortgage, you will usually have freedom to overpay or find another mortgage deal at any time, but will not have peace of mind regarding monthly payments, which could fluctuate month to month depending on the interest rate, which can change at any time.
A variant of this type of mortgage is the capped rate mortgage, with which the interest rate can vary, but with which it will be capped and guaranteed not to go above a certain amount. Another variant is the tracker mortgage, with which the interest rate will only change in line with the Bank of England base rate and will not alter due to any other factor.
An offset mortgage will allow you to link your bank current account with your mortgage. Savings will go towards the balance of the mortgage, so you will have to pay interest on a smaller amount. However, you would also not earn any interest on those savings.
Fixed Rate Mortgages
Fixed rate mortgages, unlike variable rate mortgages, will give you a fixed interest rate on your repayments for a certain time period – usually two to five years. These can be a good option if the Bank of England base rate looks likely to increase over the next few years, in which case you can use one of these offers to lock in a lower rate and save money. Bear in mind however, that you will pay to same for the fixed rate period whether interest rates go up or down during this time. If you want to find a better deal then you will usually have to pay a penalty fee to get out of the contract earlier than the end of the agreed term.
Interest Only Mortgages
Interest only mortgages used to be more common than they are now, as banks are less inclined to take these high risks. With an interest only mortgage, monthly payments are less because you are only paying off the interest on the loan and not the capital.
First Time Buyer Mortgages
Many mortgage providers offer specific mortgage deals for first time buyers, who usually require more help to buy their home. These mortgages usually allow you to borrow a higher percentage of the property value (sometimes as much as 95%, though 80%-90% is more common). Obviously, the more you have to borrow and the less you have to put in as a deposit in the first place, to higher the interest rate will tend to me and the more you’ll have to pay on a monthly basis. It is usually best to continue to save up a deposit in order to get a better deal on your mortgage. You may also be able to get help from government initiatives and schemes to help first time buyers.
Remortgage/ Second Mortgage Options
A second mortgage or a remortgage can help you to pay off your existing mortgage and give you more flexibility, especially if you manage to find a better deal. For example, if you are coming to the end of a fixed rate deal, you may wish to remortgage to keep interest rates low. The more equity you have in your home, the better a remortgage deal you are likely to be able to get.
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- Simply speaking, a mortgage is a specific loan that you take from a bank in order to buy property. You may wonder what the difference is between a mortgage and a loan. Well, the main difference is in what happens if you fall behind with your payments. With a regular loan, the bank or provider of the loan will chase you for it in the same way that they would for most other types of credit product. If you fall behind on mortgage payments, however, the bank or mortgage provider can take (repossess) your home. The personal property is tied to the financial agreement, so if something goes wrong, the property you used the mortgage to buy could be taken from you. A mortgage is a financial necessity for most home purchasers, enabling the cost of a property purchase to be spread over a number of years.
If you are looking around and thinking about how much you can afford when it comes to buying property, before you find the home of your dreams and put in an offer and apply for a mortgage to buy that property, you should do your research, compare deals and apply for a mortgage in principle. A decision in principle is basically being pre-approved and while it does not absolutely guarantee that you will be granted a mortgage from that mortgage provider, it does mean that, in theory, they will approve you (having checked your credit rating and financial circumstances) for a mortgage of the value that you will require. Getting a decision in principle before you make an offer on a property can mean that the whole process of buying your home will go more quickly and more smoothly.