If you speak to one of our team they would love to help you narrow down the perfect mortgage product for you – we use a unique in-house calculator, which combined with our decades of experience will find the best deal for you, whatever your situation.
However it is useful to have a reference sheet to refer to so do bookmark this page!
Deciding on what mortgage is best for you, be it in terms of value, affordability or return on investment, can be a bit of a minefield. Here is a concise guide to help you make that decision.
Repayment vs. interest-only mortgages
It’s pretty simple.
An interest-only mortgage is when you repay the interest on the mortgage through the term and then pay-off the equity at the end of the term.
Repayment mortgages are when you repay both the interest and the original loan borrowed to purchase the house, the capital, each month.
A repayment mortgage is usually the safest and most appropriate choice – they make sure you’re paying off your debt on the property and ensure you will have repaid the mortgage by the end of its term.
Interest-only mortgages were popular in the past owing to lower property prices in relation to wages and rapid property price growth, but in slightly more uncertain times they aren’t recommended as there is a higher chance of you being left with negative equity in your property.
What is a fixed rate mortgage?
Fixed rate mortgages are when the % rate is fixed for a set number of years, after which it reverts to the lender’s standard variable rate.
Fixed rate mortgages make up the vast majority of mortgages for homeowners, mainly for the reason that you’re paying a guaranteed amount per month, helping with budgeting and obviously useful if there is any rate rise.
On the flipside you may pay more than you would with a variable rate mortgage and you won’t benefit if interest rates fall, so you could be stuck in a higher rate mortgage.
It is also hard to remortgage whilst in a fixed-rate mortgage as there are almost always early redemption fees.
Fixed rate mortgages are usually available for a period of 2 to 5 years.
Going for the 5 year option gives more stability as there is a certain, guaranteed amount to pay each month, but it can leave you feeling trapped if the rates do change, and vice versa for the 2 year option. Again, feel free to speak to one of our team to find out what’s best for you.
Generally speaking it’s best to fix your mortgage for two or three years, and remember at the end of this period you have the option to remortgage again with another fixed rate option.
What about a standard variable rate mortgage?
Stay away from these. They give lenders complete freedom to charge however much they want to regardless of the Bank of England base rate or market conditions and do not represent good value for the customer in the vast amount of cases.
Most people will end up on a standard variable rate mortgage only because their existing mortgage deal has run its course and the lender will automatically revert you to a standard variable rate mortgage. Lenders rely on the indifference and often lack of knowledge of homeowners to keep them on this type of mortgage.
Tell me about tracker mortgages
Tracker mortgages go up and down with the Bank of England’s base rate.
To give an example, you can have a tracker mortgage that is 2% plus the Bank of England base rate. So if the base rate is 1%, your mortgage rate would be 3%.
You can have your tracker rates for the whole length of the mortgage, or for a fixed period of usually 2-5 years at the start of the mortgage. If you go for an initial fixed period, after the term expires the rates go back to the lender’s (usually more expensive) standard variable rate
Tracker mortgages are usually the best value, though be wary as the Bank of England base rate can go up and down.
Should I get an offset mortgage?
Offset mortgages are where your lender takes into account how much you have in savings with them, and knocks that amount off the debt that they charge interest on.
Offset mortgages can help you to reduce the amount of interest you pay and also give you the flexibility to pay off more of the mortgage when you have more money, and then to reduce your payments if you need a little more to spend.
So if you have £20,000 in savings, and a £100,000 mortgage, you would only pay interest on £80,000.
The main downside of an offset mortgage is that you won’t earn interest on your savings with that particular lender, and the interest rates tend to be higher on the mortgage itself.
What mortgage should I get as a first-time buyer?
Good news – lots of lenders have special deals exclusively and specifically catered for first time buyers.
These mortgages are usually biased towards having lower deposits and have lower application fees to give that extra helping hand.
The rate is usually discounted at the start, making the first few years cheaper – but the rate is often ratcheted up after so do consider other mortgage types.
What is a guarantor mortgage?
A guarantor mortgage is where your mortgage is backed by a guarantor, allowing you to borrow larger sums of money or if your have poor credit help you get approved and/or get a better rate.