Choosing the Best Mortgage for You

Choosing a mortgage can initially seem quite simple; however, there are many choices to be made to get the best deal possible for you and your particular situation. Affordability, current financial circumstances and risk factors all come into play. The type of work you do, your reasons for taking out a mortgage and even your age can all make a difference to finding the ideal mortgage for you.

Types of Mortgage

Interest Only

The advantage of an interest only mortgage is that payments are much smaller. It is vital to remember that the principal will need to be paid at the end of the agreement date. This can be a good choice if you are confident you can pay off the principal. This may take careful saving, selling a business, or perhaps coming into an inheritance.

Principal plus Interest

This is the most traditional, and perhaps safest, way of paying off a mortgage. The main danger is that if you default on payments you may lose your house.

Endowment

Endowment mortgages are very seldom used today as they are generally considered too risky. If your circumstances allow it, however, this can be avenue to investigate.

Variable Rate

The main disadvantage of a variable rate mortgage is that you at the mercy of the lender to change the interest rate. This change is usually due to fluctuations in the market but some lenders may change the rate for other reasons. You will probably end up being on a variable rate mortgage at some stage although not necessarily permanently

Fixed Rate

A fixed rate is usually set for a period of two, three or five years. The advantage it offers is the security of set payments for that period, although eventually the rate will return to whatever the current SVR (standard variable rate) is. If opting for either fixed or variable rate do take note of how payments are calculated because if interest is calculated annually and you make additional payments on principal you could find yourself paying more than you should.

Tracker

The lender works out repayment rates based around the Bank of England bank rates. Rates are often lower than with a fixed rate mortgage but because the rate is still variable it does not have the same security.

Discount

Similar to a tracker mortgage but dependent on the lender’s SVR rather than the Bank of England rates. Discounted rates are usually available for a fixed term of up to five years.

Offset

This type of mortgage is becoming increasingly popular. Essentially, it is linked to your savings account and can be extremely useful if you are in a high income bracket. Offset mortgages can sometimes lead to huge savings in both interest rates and income tax. If you don’t have a lot of savings, however, the rates, which can be either variable or fixed, can be on the high side.

Cash Back

Sometimes lenders will offer cash back on interest rates for a period of time if you take on another of their products. This can be enticing but may also carry heavy penalties if you default on payments.

Clearly, there are a number of mortgage options to choose from. Before making a decision it is a good idea to get some advice. Check out the information on this site for free impartial advice and a handy mortgage calculator

. Using these kinds of services can go a long way to helping you find the type of mortgage and repayment options that are the best for you. Understand what you are doing before making one of the biggest financial decisions of your life.

Greg enjoys writing articles giving financial advice to people, he often contributes to money related blogs.

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