Mortgages

mortgages

Even though the number of different mortgages has reduced in recent months, there are still many mortgages available. How do you find which is the best mortgage rate and best mortgage type for you?

Mortgages Types Available

Repayment

With a repayment mortgage you repay the mortgage amount plus the interest. This is calculated over the term of your mortgage and split per month. In the first couple of years of your mortgage you will often find that the amount owed does not reduce by much, this is because you are initially just chipping away at the interest.

Read more about which Mortgage Types are available.

Mortgage Rates

Another question on people's lips at the minute is which type of mortgage you should choose with the base rate being low. Well this again depends on your individual circumstances as this will affect the rate for which you are eligible. When changing mortgage products you will often find that a fee applies (or the rate is slightly higher for a no fee product) because of this it may not turn out to be most cost effective to choose a variable or tracker product when you know that as soon as you get wind of the base rate increasing you will be looking to get another fixed rate. The reason for this is you would be looking at paying 2 arrangement fees which can total around £1300 and if you make your changes in a short period of time this will not be cost effective.

Lets take 2 examples based on your mortgage being £100k, your property being valued at £150k and taking a term of 25 years:-
You choose to take a tracker or variable which runs at 1.89% above base rate (so if you took that today it would be 2.39%) and the base rate dropped next month to 0.00, dropping your variable or tracker mortgage rate to 1.89% and it remained there for 6 months, this is all hypothetical of course, but gives you something to think about.
At the time you take your variable there is a 2 year fixed rate mortgage at 2.99%.

Mortgage Rate Fee Monthly Payment Total Payments over 6 Months
1.89%£799£421.34£2528.04
2.99%£599£478.03£2868.18
This makes the saving @ £340.14 but with the arrangement fee at £799 you will have paid £458.86 more than if you had just taken out the fixed rate.

If the rate remained at 0 for 12 months then:-
Mortgage Rate Fee Monthly Payment Total Payments over 12 Months
1.89%£799£421.34£5056.08
2.99%£599£478.03£5736.36

This would mean a saving of £680.28 but this is all if the base rate drops to 0%. So when you are looking at paying for a product be realistic about the costs, don't just see a lower percentage and think that must be the best.

Another scenario is if your fixed rate mortgage has come to an end and you default onto a variable rate as standard (no fee involved) then it may be better to leave it to run on a variable rate until you hear that rates are going to rise again, but if you would prefer to not have this worry and know where you are up to then fix. The choice is yours and there are some great fixed rate deals out there to be had if you have a decent amount of equity in your property.

The best way to manage your mortgage is to plan ahead and if you are unsure consult a financial or mortgage adviser as this is not a decision to be made lightly.

First time buyers

Are faced with quite a big challenge due to the lending available being decreased. Where once you could easily have chosen a mortgage that would lend you 100% of the property price (and some that would even lend above 100%), now to get a decent interest rate you are looking at the lending amount being on 75% - 80% of the property price. So to give an example if you were looking at buying a house for £110,000 you would be able to borrow £82,500.00 (at 75% Loan to Value) meaning that you would have the additional £27,500.00 to raise by your own means and of course any additional fee's such as solicitors fee's.
This is not an easy task, and is why renting has become increasingly popular and the housing market has slowed.
Your home may be repossessed if you do not keep up repayments on your mortgage or a loan secured on it.

  • Nationwide offers home mortgage discounts - 16th October, 2009

    Nationwide has announced that first-time buyers, looking to get onto the property ladder, have received help to secure a mortgage without hefty upfront costs.

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Updated on 25th March, 2009

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