There are hundreds of mortgage deals to pick from, so finding the best mortgage for you can be challenging, time consuming and, if you get it wrong, incredibly costly.
When beginning your hunt for a mortgage, a good place to start is with internet research. Searching online can give you a starting point to identify mortgage types, and an idea of the rates available. After your initial internet research, an independent mortgage broker can then provide a more in-depth search for mortgage deals that are suitable for you. Here’s a breakdown of the most common types of mortgage deals or products.
A fixed rate mortgage is where the mortgage interest rate is fixed for a specified period of time, which means that your monthly repayments will also be based on this fixed rate – this could be two, three or five years, although there are products that fix the rate for ten years, or even the entire mortgage term. This also means that the interest rate you are charged stays the same during the fixed rate period.
A variable rate mortgage is where the rate you are charged fluctuates in line with interest rates. This means that your monthly mortgage payments can go up or down in line with interest rate charged by your lender.
Whilst it is possible to set up a mortgage on an interest only basis, this type of mortgage is not suitable for the vast majority of first time buyers. The reason for this is that, with an interest only mortgage, you only ever repay interest to the mortgage lender, which means that at the end of the mortgage term you still owe the same amount you borrowed on day one.
A repayment mortgage is where the borrower repays both the capital amount and the accrued interest in fixed instalments over a fixed period. This is beneficial as it means that the borrowed amount decreases over the fixed term, and the entire amount can be paid off by the end of the fixed period.
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