Summary
Finding a mortgage might seem daunting at first but there is an abundance of independent brokers who will be willing to listen to your needs and find you the best deal for your circumstances. Below we explain the different mortgages to give you an idea of how they work.
A fixed rate mortgage is easy to understand. From the start of the agreement the rate is fixed and it is applied throughout the term of the loan or mortgage. The majority of fixed rate mortgages are made on a two or three year arrangement but they can be done for longer. Tying yourself to a fixed rate for any longer than this time can be a bad move because if interest rates change enough to make a difference and you want to switch you could be bound to early repayment penalties. More annoyingly if the interest rate drops you could be left paying the higher rate when all around you are on flexible rates or on newer fixed rate loans.
We could all do with a crystal ball in these situations or be very good at ‘hedging' but, in reality we have to hope that the rates will stay as they are or go higher in which case, we are laughing. The problem is time goes by very quickly and you need to be one step ahead when your mortgage is up for re-negotiation. Six months before the end you need to start looking around at the options available; be it with your current lender or elsewhere, but if you do not have an alternative you will be automatically transferred to your present lenders ‘Standard Variable Rate' which will most definitely be higher than what you have been paying.
There are very many other routes that you can take and an example would be the interest-only mortgage. You do not pay a penny off the actual amount borrowed but you just pay off the interest. The thinking being that once the end of the term of the mortgage is reached that your property should have increased considerably in value and that you are left with enough equity to pay off what you owe on the original loan. No-one can ever really know what the property market is going to do, but if you look at any property that was bought 20 years ago it is worth significantly more now than it was then.
If you do not mind riding the economy then a Standard Variable Rate might suit your needs. Again, it is simple and it is linked to the Bank of England base rate which is normally about 2 per cent above the base rate. It can change at any time and lenders will usually follow their lead. There is no legislation that says that this has to be done it is only ‘expected' and may not actually happen. But, one thing is for sure when they go up there is a flurry of response.
The one way to ensure that you can achieve the closest rate to the base rate is a tracker mortgage. The usual rate is up to 1 per cent higher than the Bank of England base rate and it will be ‘tracked' precisely. Some lenders will apply a minimum rate which they call a ‘collar' and the rate cannot fall below this amount, but even this seems to be being phased out.
You do not have to worry if it all seems extremely daunting. There is a lot of help to be found on-line and you can get an independent broker to do the legwork for you and find you a product that will suit you and your needs.
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