Mortgages are possibly the largest single transaction in most people’s lives.
Buying a property can be a stressful and time-consuming experience, although nowadays the financing of a mortgage is a case of finding and selecting the most suitable deal, rather than simply accepting a lender’s offer.
Mortgages come in different shapes and sizes to suit all needs, and at Life Financial Solutions we can help you understand which mortgage is right for you.
What is a mortgage?
A mortgage is a loan given specifically to buy a property. The property you buy is used as security against the loan while you repay it.
You borrow a sum of money to buy a property over a set number of years (usually 25–35 years), and you make monthly payments to pay off the interest or both the interest and loan.
What are the basic types of mortgage?
There are two basic types of UK mortgage depending on how you repay the loan: a repayment mortgage and an interest-only mortgage, although you can have a combination of the two.
With a repayment mortgage, your monthly payments repay the capital and the interest. With an interest-only mortgage, your monthly repayments just pay the interest, and you will have to find other means of repaying the capital at the end of the mortgage.
What are the advantages and disadvantages of a repayment mortgage?
- You are paying off both the interest and some of the capital each month, which means you are guaranteed to have paid off the whole loan by the end of the term. Therefore, repayment mortgages are usually considered a low-risk option
- You can make lump sum payments and overpayments to reduce the interest and the capital you owe. However, your monthly payments will be higher than they would be with an interest-only mortgage, and there may be fees for overpaying your mortgage
What are the advantages and disadvantages of an interest-only mortgage?
- Your monthly payments only pay off the interest and are lower than if you have a repayment mortgage. However, you will need some other way to repay the capital you borrowed – this is typically done by paying into a savings plan or investment.
What types of mortgage deals are available?
There are plenty of different types of mortgage – the most popular are variable rate, fixed rate and tracker mortgage deals.
- Variable rate mortgages – this is a mortgage where you pay the variable or standard variable interest rate (SVR) of the mortgage lender. Each lender has its own standard variable rate which will be higher than the Bank of England's base rate but will roughly track it, going up and down when the bank changes its rate. Lenders' variable rates can differ widely
- Fixed rate mortgages – with a fixed rate mortgage, the interest rate is fixed for a period of time – usually two, three or five years – which is good if you want to know exactly how much you will have to budget for. However, if interest rates drop during the term of the deal, your mortgage could be more expensive than others
- Tracker mortgages – with a tracker mortgage, the interest rate follows (or ‘tracks’) the Bank of England's base rate and is usually set at percentage above it for a period of time or for the lifetime of the mortgage
What do I need to consider when choosing a mortgage?
The main things to think about are:
- The amount you can afford to borrow
- How long you want to borrow it for (the term)
- Whether you want a repayment or interest-only mortgage (or a combination of the two)
- The type and period of interest deal (fixed, variable, tracker)
- The economic climate – think about whether interest rates are likely to go up or down
You might also want flexibility with your home mortgage so that you can pay off lump sums if you come into money or, if you run into temporary problems, so that you can take a payment holiday.
At Life Financial Solutions, we have access to the whole of the mortgage market. Our team of advisers has the necessary knowledge, experience and understanding to find the best value for you based on your needs and circumstances, and we can guide you through and assist you with all the required criteria.