For those who have never dealt with mortgages before, it can be an overwhelming time when it comes to looking. What is the best one for you to go for? This will depend on your finances, lifestyle and future plans.
There are three main types of mortgages: fixed, tracker and variable. However, there are also specialist mortgages for those with bad credit, 5% mortgages for first-time buyers and buy-to-let for those who want to rent out a property.
This blog will look into each different type to help you understand how each one works, the differences and which would be best suited to you and your lifestyle.
Table of Contents
Fixed Mortgage
A fixed-rate mortgage is a deal you can get when you first get a mortgage. It means that the price of your monthly payments will stay fixed even if interest rates fall or rise, so you will pay the same amount per month until your deal ends.
These deals can last for between two and 10 years. If the end of your deal is coming up, you can start to look for another fixed-rate mortgage with another provider if you wish.
This is a good mortgage to go for in times of rising interest rates as you won’t have to pay extra if they rise in the future. However, if interest rates fall you will still have to pay the amount you signed up for.
A fixed-rate mortgage is also good for those who struggle with budgeting. Since you know how much you need for your mortgage each month, you’ll be able to work out how much money you’ll have left.
Tracker Mortgage
Tracker mortgages track the interest rates, specifically the Bank of England’s, and can follow the rise and fall. This means that if the national interest rate rises, you will have to pay more in interest. This can make it difficult to predict how much your monthly repayments will be. However, if interest rates fall you will feel the benefit with paying less.
Some tracker mortgages can last for the whole of your mortgage lifetime, so it’s important to check before signing up for one. It can also be expensive if you want to exit from the plan early.
Variable Mortgage
Variable-rate, or standard-variable rate, mortgages is when the provider you’re with can decide to move the interest rates as they like. However, similarly to tracker mortgages, it’s usually when the Bank of England moves their interest rates.
Once your fixed or tracker mortgage deal comes to an end, most people will be put on a standard-variable rate mortgage.
These are usually the more expensive types of mortgages as interest rates can really increase, causing you to pay more.
95% Mortgage
This type of mortgage is only available for first time buyers with a Help to Buy ISA or Lifetime ISA account. It gives first-time buyers the opportunity to buy a property with 5% of the house deposit. The amount they save in their ISA will also receive additional funding from the government.
If you’re a first-time buyer, this is something you should look into to help your chances of getting on the property ladder.
Specialist Mortgage
Specialist mortgages are usually relevant to those who may need extra specialist help with getting accepted for a mortgage. This can include people with a history of debt or bad credit and people who are newly self-employed.
There are specialist advisors with lenders on their books who will lend to those in these situations.
Buy-to-Let Mortgage
A buy-to-let mortgage is specifically for those looking to buy a property which they will rent out. The deal you get will depend on how much you expect to earn from the property and your personal finances. You’re unlikely to be accepted for this if it’s your first time getting a mortgage.
Get Yourself a Good Deal
With online mortgage advisors growing in popularity, there are so many lenders out there willing to offer you a mortgage deal. You should always do as much research as possible before deciding on a mortgage offer to get the best deal possible.
You are now aware of the different types of mortgages available to you, so you can start to look for deals that are suited to you and your finances.
