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Your home may be repossessed if you do not keep up repayments on your mortgage.
We charge a typical fee of £499 for mortgage arrangement.
When it comes to finding a mortgage many people are confused by all the different types that are out there. Hopefully our mortgage guide will help you understand how they differ.
This is where the mortgage repayments you make over the term of the mortgage cover both the interest and the amount you have borrowed.
Interest only mortgages
As the name suggests this type of mortgage is where you don’t actually repay the amount you borrow just the interest on it. They used to be very popular with first time buyers but now they are very rare and only offered when buyers can prove they have a credible method of repaying the amount they want to borrow. Lenders will need to see what method has been set up that will build up enough cash to be able to repay the debt at the end of the mortgage term, savings plan for example.
Fixed or variable rate mortgage?
Fixed rate mortgage
This type of mortgage is where the interest rate is set at a fixed amount for a number of years. Regardless of what happens to interest rates yours will remain the same for the specified period. Usually this is between 2 and 5 years but can vary depending on the lender.
One of the main benefits of a fixed rate mortgage is that it is easy to budget for as your repayments will stay the same. The downside is that if the interest rate falls you won’t see the benefit of this.
We would advise anyone on a fixed rate mortgage to look at new mortgage deals about 3 months before the end of the fixed period. Those who don’t will automatically be moved onto the lenders standard variable rate which could be higher.
Variable rate mortgage
As the name states the interest rate on this type of mortgage can change at any time which means you will need to budget for an increase in repayments when interest rates are on the rise.
SVR is the standard variable rate of interest which will last as long as you have your mortgage or change to a different one.
This type of mortgage is when a lender offers a discount on their SVR (standard variable rate). It will only be for a specified length of time and will vary between different lenders. When you see a large discount amount advertised don’t assume it will mean the lowest interest rate. SVR’s will differ when you compare various lenders. For example: Lender A is offering a 2.5% discount off a standard variable rate of 6.5%. This means you will pay 4% interest. Lender B is only offering a 1.5% discount but their SVR is 5% which means you will only pay 3.5% interest.
Because the rates are lower for a couple of years a discount mortgage is helpful for lots of people who are buying a property and have a lot of expenditure when they first move in. However it’s worth remembering that the lender can raise its standard variable rate at any time which would mean your repayments would increase if they did.
This type of mortgage normally moves in line with the Bank of England’s base rate meaning whatever the base rate increases by so will your mortgage interest rate. Although they usually only run for between two and five years some lenders are offering trackers lasting for the life of your mortgage.
The benefit of this type of mortgage is that if the rate it is tracking falls so will your mortgage repayments. However if it increases your payments will be higher. Be aware that if you want to change your mortgage before the deal ends you may be liable for an early repayment charge.
We would always advise buyers to get some professional financial advice when looking for a mortgage.
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