After you decide on your mortgage you then need to decide on the kind of mortgage you want. Generally, there are five different kinds of mortgages available.
This mortgage is the most popular and has a fixed rate of interest for a set period of time. This means that regardless of the rate of interest that is charged afterwards, you only pay this rate for the duration of the agreed time. This is usually between 2-5 years and then it is reviewed or set at the Standard Variable Rate. These mortgages are subject to early repayment charges and means if you wish to pay the mortgage off early you may be subject to large charges.
Capped Rate Mortgages
This is similar to the fixed rate, aside from one area. The mortgage is paid at a standard fixed rate unless the interest rate drops below a certain rate, then the interest rate is reduced. However, if the rate rises again over the capped rate, the mortgage stays at the lower rate. This makes a capped rate mortgage preferential to a fixed rate version.
This mortgage is offered at a discount by the lender for a period .So, if the mortgage is 5% and the discount is 1.5% for three years. The borrower pays back 3.5% for three years. This works on the variable rate, so if the rate rose to 6% then the charged rate would be 4.5% and so on.
The biggest problem with the discount rate is that it only lasts for a few years and people have to be able to cater for larger repayments when the term is up. This can often be a financial shock if not prepared for. Some companies provide up to 4% relief, which can be a big gulf.
This mortgage is based on the Standard Variable Rate and if this increases so do the repayments. Of course, if it decreases the borrower benefits too, meaning lower rates increase the chances of you being able to sell a house quickly.
This sort of mortgage is set at a particular percentage point above either the central bank rate or the interbank rate. This is then repaid for an agreed period and as you can see ‘tracks’ the changes to the base rates. If the rate increases then the borrower loses out and has to pay more. If the rate falls the opposite happens. This is currently a quite popular mortgage due to the record low rates at hand in most countries.
Choosing a mortgage is not easy and talking to a special advisor is something often recommended.
This article was written for Yousellquick a UK house buying company that will purchase your home for between 95 and 100% of its market value.