Mortgage Guide - Which Mortgage Is Best?

As more and more financial products begin to crowd the UK property market it has never been more difficult to understand the various mortgage types… there are simply so many these days. So how, you may well ask, do you know which mortgage package is right for you?

When it comes to property finance, mortgages and selecting the best financial products, it is all about research.

It can also be very helpful to seek professional financial advice, as an experienced independent financial expert can guide you through the plethora of mortgage products on the market and help you to select the mortgage product that is best suited to your circumstances and more importantly, is affordable for your current situation.

Popular Types of Mortgage

Two of the most recognisable mortgage products on the market still prove to be repayment and interest only mortgages… so, what’s the difference?

Interest Only Mortgages

Interest only mortgages work exactly how their name suggests… you pay the mortgage lender only the interest on the amount you borrow.

This means that should you borrow £250,000 from a mortgage lender over a 25 year period, you would make regular, usually monthly payments, but at the end of the term you would still owe the lender £250,000 because you have been only been paying the interest on the money you originally borrowed.

This form of repayment is not an ideal scenario, but it can help many people to at least get, or keep their home.

Interest only calculator →

Repayment Mortgages

A repayment mortgage is the type of mortgage that many people in the UK will opt for and it is classed by many as a “traditional” mortgage.

A repayment mortgage is where you make monthly repayments to the mortgage lender (normally over a period of 25 years although it can be more, or less) and after this time has run its course, the property would be yours outright… it’s pretty simple.

Repayment calculator →

Mortgage Interest Rates

It isn’t just the type of mortgage that you are taking out that you need to be aware of, you also need to be clued up when it comes to the different ways that lenders can charge you for the privilege of borrowing their money.

It is important that you get this right from the outset as even the slightest interest rate increase on the wrong rate could mean that you repay thousands more over the term of your mortgage.

Different interest rates that may be offered to you include:

Base rate trackers
Capped rates
Discounted rates
Fixed rates
Standard variable rates

In order to fully understand what these alternative interest rate mechanisms mean for you, you should thoroughly research the mortgage markets and also seek the advice of an independent financial professional, preferably a specialist in mortgage products.

To give you a rough idea, however, we’ll provide you with a quick breakdown of what each rate mechanism involves.

Base Rate Tracker Mortgages
A base rate tracker mortgage relates the interest rate charged to the Bank of England base rate, so what you pay is ultimately tied to the Bank’s published rate.
This means that when interest rates go down, then so does your own mortgage interest rate, which consequently means you are paying less on your mortgage.
But remember, if it goes up, so do your mortgage repayments.
Capped Rate Mortgages
A capped interest rate mortgage sits somewhere in the middle between the variable and fixed rate mortgage options.
Even though the interest rates of interest can rise or fall however, they will never go any higher than the capped rate that has been agreed at the start of the mortgage period.
This can be very useful as it gives borrowers some security over time as they know with certainty what their maximum, “worst case” monthly repayment scenario would be if interest rates rise significantly.
Discounted Rate Mortgages
A discounted rate mortgage has ties with the standard variable rate.
Again interest rates may move up and down slightly, but it will be lower than the standard variable rate mortgage for the discounted period.
Fixed Rate Mortgages
Fixed rate mortgages are the option that most borrowers opt for.
A fixed rate mortgage means that once you have agreed a repayment figure, irrespective of bank interest rates, you will pay the agreed amount for as long as the interest rate is fixed.
Standard Variable Rate Mortgages
Standard variable rate mortgages mean that interest rate can rise or fall depending on the lenders own performance, market rates and the bank’s base rate.

Minimising your Monthly Re-Payments

Always bear in mind when analysing different mortgage types that a big portion of what you can expect to pay each month is still under your direct control.

This is because, if you save up long enough to build a bigger deposit, it will mean that your mortgage repayments will generally be lower as you have to borrow less.

Mortgage Checklist

Finally, a few things that you should bear in mind that will stand you in good stead when it comes to choosing a mortgage:

Deposit
Try to save up as big a deposit as you possibly can so that your monthly loan repayments are as low as possible.
Credit rating
Check that you have a good credit rating, this could affect the level of risk the lender perceives in your mortgage application.
Compare
Always compare mortgage types, lenders and their reputations, as well as fees that you are expected to pay.
Financial advice
Get good independent financial advice, make an appointment with a mortgage specialist who will point you in the right direction and may even be able to get you a better deal; and finally…
Read the Small print
Always check the small print of the finance agreement over and over again before you sign anything officially.

Specialist Self Build Mortgages & Property Finance Solutions

As a leading independent property investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are searching for specialist self build mortgages or other property finance solutions please contact us today to discuss how Investment Property Partners can help you.