How to Choose a Mortgage

MortgagesIt’s everybody’s ambition to own a beautiful house and a commercial property so they can run their own business. Unfortunately, these dreams, as joyous as they may sound, are very likely to be shuttered due to lack of money.

But then again, there is always a solution to each and every problem. Taking a mortgage is the best way to get the money you need so you can purchase that property you so desire. A mortgage is a loan that one acquires from a financial institution, such as a bank, which helps applicants purchase a property.

Just like any other loan, a mortgage is paid back with interest. When deciding which mortgage to apply for, a number of considerations should be made, for example, what is the interest rate requested by the financial institution, how much will you have to pay every month and for how long, in order to repay the mortgage.

You should go for a mortgage that has a low-interest rate so that you don’t get overwhelmed when repaying it. In the UK, mortgages are categorized on the basis of the interest rates that one feels more comfortable with. These rates will vary depending on the term chosen by the client, which usually goes from 10 to 30 years.

These mortgages are divided into two categories: fixed-rate and variable-rate mortgages.

Fixed-Rate Mortgages

Fixed-rate mortgages charge a permanent rate of interest for a certain period of time which is usually very small. The advantage of fixed-rate mortgages is that one is protected from increases in interest rates. This helps one to budget carefully. The disadvantage is that if interest rates plunge, the client can not benefit from this, being tied to the fixed term and re-mortgaging is not recommended in situations like this, or you would be charged an ‘early redemption charge’ (ERC).

Variable-Rate Mortgages

In variable mortgages, the amount of interest you pay can go up or down. This mainly happens if the Bank of England changes the base rates. However, this depends if your mortgage deal has a tracker or discount. If it has a tracker, the main Bank sets a fixed rate and the interest changes in line with the changes. Trackers are convenient as they don’t have ERCs and you can set the time you want to repay your mortgage. On the other hand, if it has a discount, the interest rate is fixed to your lender’s standard variable rate, SVRs. Discounted rates are not transparent as they depend on the discretion of the lender and they also have ERCs. The main advantage of variable rate mortgages is that one will enjoy low-interest rates once they fall, the disadvantage being the monthly repayments may go up once the interests rise. This brings about poor planning.

Secondly, there are mortgages that need one to pay a minimum balance of the mortgage. Lastly, some mortgages include arrangement, exit and other fees that one should look into before taking that mortgage.

Treasure this information and choose a mortgage that you will enjoy repaying.

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