There are a lot of mortgage options to choose and you need to pick the right option to get the best out of it. The best way of doing the same is, learning about the advantage and disadvantage of each mortgage option. This article takes about three main types of mortgages which should be considered, while buying a property.
Fixed rate mortgage
In the case of the fixed rate mortgage, the interest rate on your mortgage would remain the same for a fixed period of time. The period can vary between one year to five years. The advantage of this option is that the amount of repayment would remain the same, every month. However, if the interest rate falls, then you might not be able to benefit from it and pay less. If you think that the interest rate would rise in the future, it is better to opt for this mortgage option.
The mortgage repayment amount can move up and down based on the base rate. If you are already on the tracker mortgage, it is better to repay more every month and keep yourselves ready for any sudden hike in the rate. If you are planning to opt for tracker, think of other options and shop around for better deals.
In the case of the ‘interest only’ mortgage option, the repayment would cover only the interest on the amount of money you borrowed and it does not help you in paying off the loan. If you are already in the interest only, you can only pay off the mortgage at the end of the term, which means you need to be saving a lot. On the other hand, if you are planning to opt for this option, then, it is better to avoid it because after all the years of repayment, you would not have paid one pound off the main amount.
Apart from these, there are a few mortgage guarantees offered by the government. If you need help in finding the best type of mortgage, you can use the ‘Help To Buy mortgage’ scheme. The government run schemes have one disadvantage as the risk of increase in the repayment is possible, due to increase in the interest rates. Seek the help of a professional financial advisor to help you in picking the right option.