Mortgages - A Beginner's Guide to Mortgages
The decision to buy a house doesn't end there! Once you've decided to make this lifetime committment you need to decide which mortgage is the right one for you. What do you want and need from your mortgage? How much can you realistically afford to repay each month? What will happen to your repayments should mortgage interest rates rise or fall?
Although you may think you don't need to consider such things, the truth is you really do! So here's a beginner's guide to mortgages to help you navigate your way around all the choices with which you may be presented by your mortgage broker.
Fixed Rate Mortgages
A Fixed Rate Mortgage is one which lends you money at a set rate of interest over the entire duration of the loan. In an unstable climate this can be ideal. However, such mortgages are not always available and often require a larger deposit.
Standard Variable Rate Mortgages
A Standard Variable Rate (SVR) Mortgage can sometimes be a good option if you are trying to save money. If interest rates fall and you hold this type of mortgage then you could potentially save a lot of money on your monthly repayments. However, you should always bear in mind that if interest rates increase, so too will your repayments and you may well find you simply can't afford to meet the committment you've made.
Tracker Mortgages
Tracker Mortgages follow the Bank of England's base rate meaning interest can go either up or down depending upon the state of the economy.
Interest Only Mortgages
An Interest Only Mortgage allows you to repay just the interest on your loan. This is a very useful type of mortgage if you are having short-term financial difficulties. If you only pay the interest then at the end of the mortgage period you will still owe the capital you initially borrowed. However, if you are sure you will be in a better position in a few years then this is an ideal choice and the majority of mortgage lenders offer this type of mortgage.
First-Time Buyers Mortgages
Many mortgage companies offer special deals for first-time buyers and if this applies to you, then this type of mortgage can be a good choice. However, the downside is that you will often need a substantial deposit so you'll need to have some savings put aside in order to qualify for a First time Buyers Mortgage. This will work to your advantage if house prices are in decline. However, if house prices are rising you may find a house is still out of reach by the time you have saved your deposit.
When you are ready to start looking for a mortgage, you should be prepared to compare various mortgages from a good selection of mortgage lenders in order to get the best deal you can for yourself. It can be well worth doing an online search on a mortgage comparison site and it's often a good idea to contact an independent financial advisor for advice. Independent financial advisors can often get good deals for their clients that are not widely publicised, plus their fee is usually paid by the mortgage company. However, be aware that whatever method you choose you will still have other fees to pay such as a mortgage set up fee, solicitors and surveyors fees and stamp duty.
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