Mortgages can be very complex or very simple. Finding the right mortgage can feel like a minefield. dont despair though. Mortgages can be simplified.
If you are seeking independent advice make sure your advisor is IFA accredited as they will be fully qualified and kept keenly in line by the FSA (financial services authority).
Firstly you must decide how much you can borrow against how much you need to borrow. Once you have decided how much you need to borrow you can use the UK mortgage calculator above and get a good idea how much your monthly repayments will be at the different interest rates.
The current bank of england base rate is 0.5 %. Most mortgage lenders add around 2% onto the bank of england base rate to determine there standard variable rate or SVR.
The SVR is what all mortgage lenders base there different mortgages around and can also differ form lender to lender.
Most lenders will offer different deals. the most common being;
Fixed rate mortgages | Variable rate mortgages | Discounted mortgages | Capped mortgages
Fixed rate mortgages: This means that your lender will fix the interest rate of your mortgage for the period agreed. the period can be anything from 12 mths to 10 years.
Good: You know exactly how much your mortgage payments will be for the fixed rate period.
Bad: If the interest rate decreases you may be paying more than the SVR.
Variable rate mortgages: Every lender has a SVR as earlier explained. Your mortgage will be based around the lenders SVR . some lenders have lower SVRs than others so it pays to shop around.
Good: If the bank of england base rate goes down then your monthly payments go down.
Bad: If the bank of england base rate goes up then your monthly payments go up !
Discounted mortgages are set around variable rate mortgages. usually as an introductory offer or to tempt new customers, lenders will offer a discount on there variable rate mortgage. This will be a percentage. These mortgages can still go up and down like variable rate mortgages, but at the discounted rate.
Good: Cheaper repayments than the variable rate.
Bad: You are tied in for a period and will have to pay penalties if you want to come out of the mortgage early.
Capped mortgages: Again this mortgage is based around a variable rate mortgage. The lender will offer you a limit or cap that the mortgage rate can rise to however if the rate falls then your mortgage rate can also fall with it. This appears to be a good but there will be a large admin fee and the deal needs to be scrutinized.
Good: The cap stops the rates climbing but will drop if the base rate does.
Bad: Hard to find deals like these now. There will no doubt be a large admin fee.