Getting a mortgage in the UK today is not as difficult as compared to previous years. Nowadays, you have more options, and professional help is available through mortgage brokers and advisers. The property market is thriving and more individuals are opting to purchase their own home than rent one, simply because better mortgage deals found.
But if you are planning to buy property and are not quite sure what steps to take, a little bit of knowledge goes a long way indeed. For instance, what type of mortgage should you choose? There are basically two kinds of mortgages to opt for: either a fixed rate one or a variable rate one.
Following are some important considerations to help you decide which type of mortgage is best for your needs.
Comparing Variable & Fixed rate mortgage
A fixed rate mortgage is where the rate remains stable for a certain time period. With a fixed rate mortgage, your rate is not affected by any changes in the base rate of the Bank of England. With a variable rate mortgage, the rate will fluctuate. Sometimes it will be higher, but there are times when it will be lower as well – all depending on the Bank of England’s base rate.
For many first-time property owners, a fixed rate deal is a good choice because it allows them to stay safe – they can plan their finances more easily and will be sure of repaying their mortgage in a set term. Meanwhile, whilst a variable rate mortgage is less expensive initially, the interest rates vary, so you may have to pay a higher interest rate at certain points. However, if you decide that a variable rate mortgage is for you, it may be better to choose a tracker variable rate mortgage, which simply follows the B of E’s base rate rather than the lender’s own rate.
Main points to consider
Each type of mortgage has its merits, but the point is for you to be able to strike a good balance and get a good deal that is suitable for your needs and finances. The key, for instance, in choosing a fixed rate mortgage is how long you should set the term for.
To know how long a term is best, you need to weigh the security and stability of your finances versus the fact that a fixed rate mortgage will often carry charges for early repayment as well.
You have to decide how long you are able and willing to pay for your mortgage. Most individuals choose to have a medium-term mortgage which lasts for a few years. You also have to consider what happens if you ever decide to move in the future.
If you decide to move, you may be able to take your existing mortgage to your new home or property, but there is no guarantee that your lender will be able to offer you a good price for an additional mortgage.
And if you do not fulfill their criteria for the additional loan, you may just have to transfer to another lender and pay more in the end.
The kind of mortgage you choose will make an impact on your future stability and security. This is why it is doubly important to choose the right one. If you are not certain about your choices, you can always turn to a mortgage advisory.