Choosing a mortgage
It is therefore important that you take the time to consider what each different option could offer you as an individual as, when shopping for mortgages, it will not generally be a case of ‘one mortgage fits all’.
Our FREE mortgage guides can help you do just that - click on the links below to find out more:
You can also use our online mortgage comparison to compare the best deals on the market, our mortgage calculator to work out what your repayments might be or if you are still not sure, you can use our FREE independent mortgage quote service.
An interest only mortgage tends to require you to pay monthly interest only repayments. At the same time as paying interest, you would be expected to pay into a long-term savings account. Upon maturity, the funds in this savings account would need to be able to cover your mortgage loan.
Interest only mortgages tend to use the following investment vehicles:
Your loan would be repaid with savings from an individual savings account (ISA). ISAs come with potential tax benefits, however if interests are low, there is a risk that the savings may not be able to fully pay off your mortgage at maturity.
This would involve you paying back your loan with a life insurance and savings policy. This could be fairly expensive, as well as less flexible than an ISA mortgage.
This type of mortgage would involve you paying part of your mortgage loan with your pension. This tends to be most beneficial to higher rate taxpayers and the self-employed.
A repayment mortgage would require you to make monthly payments of interest plus capital, with payments stopping after your mortgage loan has been repaid.
Interest rate options
A mortgage with a fixed rate would have its interest rate set at a certain discounted amount for an assured period. Following this period, it is likely that the rate will revert to the lender’s standard variable rate (SVR).
Tracker interest rates move in accordance with the Bank of England base interest rate and, as such, could go up or down in line with this.
Capped interest rates work in a similar way to tracker interest rates, in that they could go up or down with the Bank of England base interest rate. However, these rates are subject to a ‘cap’, meaning that the interest rate would not increase above a certain amount.
The standard variable rate (SVR) refers to a lender’s basic interest rate without any special discounts applied. This is subject to increase or decrease at any time.
An offset mortgage would normally be linked to your savings account, although you may also have the option to link your current account, as well as credit cards or loans. With an offset mortgage, you would sacrifice the ability to earn interest on your in-credit balances in exchange for reducing the amount of interest that you would pay on debit balances.
For example, if your mortgage was £150,000 and you had £25,000 in savings, you would only pay interest on £125,000 of your mortgage.
Mortgage hunting tips
- Shop around with a number of different mortgage providers and compare what each could offer you for your money
- Get together as large a deposit as possible, as mortgages with lower loan to value (LTV) tend to offer the best value for money
- Work out how much money you could afford to pay each month for your mortgage
- Use a mortgage calculator to work out affordability of each mortgage
- Consider long term costs of a mortgage as well as introductory offers to ensure that it would continue to offer you good value
- Check whether your current account or savings account provider could offer you a mortgage with preferential rates as you are an existing customer
- Speak to an independent financial adviser (IFA) for advice if you are unsure as to which type of mortgage could be best for you.