Understanding how to find the mortgage that is right for you.
You have 2 options when it comes to finding your mortgage:
- Use the services of an impartial mortgage advisor who will search the current market for you to find the best deal.
- Search the market yourself, either by looking at individual lenders or price comparison websites.
Mortgage type: Repayment or interest only?
- Repayment mortgage: you repay both the capital and interest in fixed monthly instalments over your preferred term, which is usually 25 years.
- Interest Only Mortgage: These require you to pay only the interest on the mortgage every month, so don't reduce the overall mortgage balance. Most lenders ask you to have a suitable repayment option in place to allow you to repay the outstanding capital at the end of the term. These are usually niche products and only suitable for certain clients.
Interest - rate terms
You'll need to decide on the interest rate you want with your mortgage. There are a few options.
Fixed - rate: with this, the interest stays the same so you have the security of knowing how much you'll pay every month for a fixed number of years. Interest rates go up, your repayments won't.
Tracker - rate: based on a margin over the bank of England base interest rate. They're variable so change in line with Bank of England rate movements they can go up as well as down. Some lenders base their trackers off the bank base rate so it's important to understand whose base rate the product tracks.
Discount - rate: the lender provides borrowers with a discount from their standard variable rate, typically for two years. These are more risky than fixed or tracker rates as the bank or building society can increase the amount you pay at any time.
Capped- rate: this means you won't pay more than an agreed rate for fixed number of years. If the base rate falls, the interest rate on your mortgage will also fall. There aren't however, many of these available.
Offset: this is where you offset your savings and potentially money in your savings and potentially money in your savings account against your outstanding mortgage balance. This ensures you reduce the amount of interest on money in your current and savings accounts for the length of the current low savings rate an offer the hope is you will still make savings.
Standard variable rate: once most of the mortgages mentioned above finish, they switch to a standard variable rate this means your mortgage repayments will probably increase by a significant margin. It is generally worth avoiding going onto this rate, so look at changing your mortgage as it finishes.
Before you enter in any mortgage agreement, check important details such as charges for repaying the mortgage early or making any overpayments.
Make sure you are aware how long the mortgage offer lasts for and try to make overpayments on time is possible. Later repayments may cause problems securing new credit.