Choosing Your Mortgage – A Short Guide for First Time Buyers
published on 31/01/2018
At first glance you might be overwhelmed by the number of mortgage deals available. However, basically there are only two types of mortgage you need to consider, and they are fixed rate or variable mortgages.
A fixed rate mortgage is usually set for a certain period. Many first-time buyers will be offered fixed rates between a period of 1 and 5 years, although longer periods are available from some lenders.
A fixed rate mortgage means that you’ll know exactly how much money you’ll need to pay each month during the fixed rate period. It’s a good way of being able to budget. If the mortgage rate rises you don’t need to worry. If it drops you won’t get that advantage, but you won’t have the uncertainty either.
Rates of interest are usually slightly higher than a variable mortgage. And, you’ll also have high penalties if you decide to leave the deal early. When the fixed rate period ends your mortgage with convert to variable interest rates. If you don’t like the rates fixed by your lender this is when you can look around for a better deal and change your lender.
Variable Mortgages are subject to interest changes. If the rate rises, you’ll find yourself paying more for your mortgage repayment. If they drop, then you’ll pay less. There are three types of variable mortgage:
Standard Variable Rate (SVR)
Lenders normally base their standard variable rate on the Bank of England rates and then add a bit more. Some lenders will offer mortgages with percentage rates of 2% to 5% above the base rate. Each lender has its own rates.
Discounted Rates on Mortgages
This is when a lender offers to discount a certain percentage off their variable mortgage rates. This will only be for a certain amount of time, usually between 1 and 3 years. It moves in tandem with the standard variable rate, so you won’t be able to budget like you can with a fixed rate mortgage.
Tracker mortgages tend to reflect the interest rate set by the Bank of England. This means you’re less likely to be given a change just because the lender decides to increase them. The rates will go up and down though, so what you pay won’t be certain throughout your mortgage term.
It’s important to research the market before deciding which lender you want to approach. If money isn’t a problem, then you might prefer the lower rate variable mortgage. But, if you know money is going to tight in the first few years then consider a fixed rate mortgage which will allow you to budget.