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For most people, your home will be the largest single investment you will ever make, so making the wrong decision can become a very expensive mistake. Taking the wrong mortgage can end up costing thousands of pounds extra over the lifetime of the loan. What appears to be the cheapest on day one, will not always prove to be so over an extended period of time.
We have access to a panel of lenders representative of the whole market, which means that they can offer you more than 3,000 different mortgage products from over 54 lenders, including many that are not available in the High Street.
The monthly payment combines both repayment of capital and interest so that the loan is guaranteed to be repaid at the end of the mortgage term, often 25 years, depending on your age. The monthly repayment will vary with any change in the mortgage interest rate. Consequently, it is important to factor in a rise in interest rates to ensure continued affordability.
A mortgage has to be redeemed by the end of the specified term, more commonly as above with a combination of capital and interest on a monthly basis. However, in some circumstances, a lender will allow the payment of the interest charged only, leaving the borrower with the responsibility of repaying the mortgage at the end of the term, usually with a savings vehicle such as an ISA or pension.
As with a capital repayment mortgage, the monthly payment of interest may increase with a rise in the mortgage interest rate.
A flexible mortgage permits both the underpayment and overpayment of the loan with changing circumstances. It is also possible to build up a cash reserve from which funds can be withdrawn for other purposes or a financial emergency.
A variable rate mortgage links your monthly repayment to the prevailing rate of interest, which can change in line with the lender’s standard mortgage interest rate or the Bank of England Base Rate. Once again, careful budgeting is important to ensure future affordability is not a problem.
This is a facility whereby the initial rate at which interest is charged is lower than the standard variable rate for a specified period, eg. two years. It is invariably used as a marketing tool to attract new borrowers. It can be useful for professionals and younger practitioners in particular whose earnings are expected to rise within the discount period.
A fixed rate of interest for a period of, say, two or five years, can be very useful for borrowers wishing to be certain of their monthly repayments or whose income is limited and expenses high. Predicting the future movements of interest rates is a difficult call but the rate is often set in the lender’s interests so careful consideration should be given in determining whether it is worth paying a fee for. Furthermore, opting for a fixed rate invariably means sacrificing flexibility.