Don’t know your tracker from your fixed or variable rate? Getting confused as to how long you should tie your mortgage in? You are not alone. There are many different types of mortgage out there and it takes a financial advisor to sort out which one is the best for you. If you need a quick heads up however, as to the main terms and what products are available, then read on, as we have put together some advice and tips as to which mortgage is best for you.
Fixed vs. Variable
The first thing you need to do is decide whether you want to go for a fixed or variable rate mortgage. But what do these terms mean? A fixed rate means that for a certain time period, the rate of interest that you pay is fixed at a certain level and will remain so for that time period. A variable rate means that the rate can change at any time and this means that your payments could go up. Typically, rates on variable deals are often lower than fixed – initially. A fixed rate mortgage offers more security than a variable one, however, you may have to pay more out initially but at least you know your repayments won’t change for a set period of time. Don’t forget, however, that the Bank of England base rate is currently at a historic low, so interest rates will start to go up at some point.
Trackers vs. Discounts
If you do choose to go for a variable rate mortgage, it is better to opt for a tracker rather than a discount. This is because trackers are directly linked to the Bank of England base rate so your mortgage rate will only change if there’s a change in base rate. Discounts however are linked to your lender’s standard variable rate (SVR), which the lender can change at any time. And don’t think that if the Bank of England does not change their rate, it doesn’t necessarily mean that lenders won’t change their rate, they often do.
How long should I tie into my mortgage?
Whatever type of mortgage you decide to go. Be it fixed or variable, you need to see how long you are prepared to be tied into it. Remember, that most mortgages will lock you in during the introductory period, and you’ll be charged a penalty – known as an early repayment charge – if you need to get out early. Think carefully then about tying yourself in for too long, as if you have to get out quickly, it could cost you thousands in fees. There is one exception, a term tracker, also called lifetime trackers. Most of these are penalty free, leaving you free to re-mortgage at any time.
How much is the fee?
Don’t forget that there are always fees to pay when you take out a mortgage and some of the ones with the best rates will have the highest fees. So as well as looking at the long-term interest rates, you need to also factor in the short-term in the arrangement fees when comparing mortgage products.
Get financial advice
Getting a mortgage is probably the biggest financial decision you will ever take so get the proper advice. And if you don’t really understand the terms, then you should employ the services of a financial advisor.