Buying a house is personally and financially one of the most crucial decisions. Statistically it is an important financial goal of about 70 percent of the working population and nearly 80 percent of the working population takes mortgage to buy their houses. So, the most responsible thing to do would be to know about various aspects about mortgages as this is the decision that can impact your future decisions. As you will be the one who would be paying this for a decided tenure you must decide all the factors before getting a mortgage.
What is a mortgage?
A mortgage is an agreement between you and a lender keeping property as a collateral. There are various banks which offer mortgages in the United Kingdom like Barclays, HSBC, Santander, NatWest, Nationwide etc. Having a thorough knowledge about the types, interest rates and benefits can help you in picking up the right one for you.
Types of mortgages
The first step in deciding which mortgage will be the best option for you as per your needs and preferences would be to understand various types of mortgages offered by various retail banks.
Fixed rate mortgages: Fixed rate mortgages are the mortgages having fixed rate throughout the mortgage term. It gives you a relief that your mortgage rate will not change as per the ever-changing market rates. The mortgage rate is set above a defined standard rate and is locked for the tenure of the mortgage. It is the most frequently bought mortgage as the normal working class do not shuffle their property. People tend to buy this mortgage more as they can easily calculate how much they would be paying.
Tracker Mortgages: These are mortgages which tracks Bank of England’s base rate which is the interest rate at which other banks borrow money from Bank of England. So, your interest rate can be either slightly higher or lower than the base rate. Introductory rates are lower than other mortgages. It gives you the independence of overpaying your mortgage reducing your overall interest. You can enjoy the flexibility of changing into the fixed mortgage if the interest rate goes up.
Discounted rate mortgages: Discounted rate mortgages do just what they are named to do that is to provide you a discounted rate for your mortgage but that is only for a limited initial period. The mortgage will be changed to standard variable rate once the initial offer expires. The best way to use a discounted mortgage would be remortgage the property with a different lender. You should only consider the discounted rate mortgages if you have planned for increase in installment amount once the time for early discounted is over.
Standard variable rate mortgages: Its a mortgage where you are paying installments as per the lender’s standard variable rate. The interest rate can change at any time depending on various market factors. These mortgages can be expensive as the standard variable rates are usually greater than standard base rate. It is best suited for customers who are planning to pay off their mortgage early and have planned for any increase in your interest rate.
Buy- To Let mortgage: This mortgage is suitable for people who are looking to rent out the house that they are going to purchase and want to take mortgage on that property. Lender’s usually have a certain criterion for such mortgages and there some additional charges associated with these mortgages as well. So, if you are planning to get this mortgage make sure that you have done your research and weighed your pros and cons effectively to make the right decision in selecting the lender.
Help- To -Buy mortgages: These mortgages are basically the government schemes which helps the first-time home owners to get the mortgages at a very low rates and at a very less deposit as well. However, there can be some regional limitations and there is a fixed number of people who are selected under these schemes. The advantages of these mortgages include a very less deposit of only 5 percent, low mortgage rates, interest free payments for five years, low rate of interest when you start to pay, flexibility to pay off equity loan any time. However, there are some cons associated with them such as repayment amount is not fixed, possibility of increase in interest rates, availability only on new constructions, difficulty in remortgaging and risk of negative equity.
Shared ownership Mortgage: This is the best mortgage if you are on a tight budget as you will be paying the mortgage for the part of the property that you own and the rent of the part which you don’t. the most amazing feature of this mortgage is staircasing in which you can increase your ownership as per convenience by increasing the amount of your mortgage. There is an income criteria and requirement of a good credit score for this mortgage. The advantages include opportunity to get a house at a very less deposit, ability to staircase your way to complete ownership, potential of making profit if decide to sell the property and if you are military personnel, you get priority over other groups of people for these schemes.
These are various mortgages offered in the United Kingdom. It is very easy to get confused in making the decision about the selection of the mortgage that will suit your needs best. But you do not to worry as in the next blog we will be diving deep into the factors that you should consider before getting a mortgage. So, keep following the blog as it is your money and you must use it wisely.
